As central bankers meet this week at an annual conference in Jackson Hole, Wyoming, the global landscape remains bleak. Along with growth remaining sluggish, inflation is barely registering. Meanwhile, businesses won’t invest and consumers remain mostly hunkered down.

This is why the world’s key central banks have worked themselves into contortions to try and rev up economic growth, and fire up the global recovery.

But economists are warning that easy-money policies is losing its effectiveness. In fact, some are saying such policies might even make things worse.

Read: Some Fed members worried rate rise may come too late

Consider that central banks’ extraordinary efforts around the globe weren’t meant to be permanent. They were designed to restore confidence in a banking system that was teetering in 2008, and then to counter the deepest recession since the 1930s.

Still, the United States–and especially Europe and Japan–haven’t been able to ignite borrowing and spending, or restore their economies to full health.

The International Monetary Fund foresees sluggish growth in each economy this year: 2.2% in America, 0.3% in Japan and a collective 1.6% in the 19 countries that use the euro currency.

Current state of central banking

When it comes to inflation, the Federal Reserve, European Central Bank and Bank of Japan are all aiming at the same target: 2%. But they keep missing.

To date, prices are barely rising in Europe and America, while they’re falling in Japan–Rising prices are important because they get people to spend to avoid having to pay higher prices later and thereby fuel economic growth.

But consumers and businesses aren’t acting as if they expect prices to rise. They’re acting as if hard times, low prices and cheap loans are here to stay.

Read: Lowe’s and Target cut profit estimates on Q2 results

In the United States, business investment has fallen for three straight quarters. That’s one reason economic growth has remained subpar since late 2015. American consumers are saving more and charging less on credit cards than they did before the 2007-2009 Great Recession.

Assessing the Fed’s efforts, Charles Sweat, president of First Peoples Bank of Pine Mountain, Georgia, says, “I don’t know it’s done as much to stimulate additional borrowing as it was designed to do.”

Sweat notes that many Georgia households are still recovering from the financial crisis, paying debts and rebuilding savings. He also says regulations enacted after the crisis have made it harder to borrow; processing a mortgage now takes up to 60 days, twice what it used to.

So, will the Fed feel confident enough to resume raising rates when it meets next month? Whatever its other problems, the U.S. economy is generating enough jobs (nearly 2.5 million over the past year) to lower the unemployment rate to a healthy 4.9%.

But things look uglier in Europe, where unemployment is stuck at 10.1%. European savers are shrugging off super-low, and even negative, interest rates and still socking money away in the bank.


Japan’s central bank imposed a fee on commercial bank deposits in January by imposing a negative interest rate. That bold step was meant to prod banks to lend instead of paying to park their money at the Bank of Japan, but hasn’t worked–since January, bank lending in Japan has been growing more slowly than it typically did before the negative rates.

The troubles that ail the world’s biggest economies may be beyond the reach of central banking. They include aging workforces, sluggish worker productivity and a sharp deceleration in China’s mammoth economy, which has shaken financial markets and slowed worldwide growth.

Read: How aging populations are affecting global growth

“The Fed can only take things so far,” says Frank Sorrentino, CEO of ConnectOne Bank in Englewood Cliffs, New Jersey. “You look around the globe and you see economies that are not doing well, and it’s putting pressure on the United States.”

He and others say governments must do more by investing in roads, bridges and other infrastructure. These are moves that could make their economies more efficient and put more people to work.

But political gridlock in the United States and debt worries in Europe have paralyzed governments. “The entire West has forgotten what fiscal policy is,” says Mark Blyth, a professor of international political economy at Brown University.

Read: Canada a testing ground for new ideas about deficits

A new analysis by Standard & Poor’s suggests that rising income inequality may also be diminishing the Fed’s influence. For example, lower rates have benefited America’s top earners, who have managed to capitalize on low rates to buy houses or refinance mortgages and enjoy a stock market rally fueled by cheap money.

Conversely, even at low rates, poorer Americans struggle to qualify for mortgages and other loans. And they’re far less likely to own stocks. The result is that it’s hard for the Fed alone to foster a robust recovery.

Read: Income of wealthy Americans climbed 7.7% in 2015

Some economists warn that easy money is actually causing damage. Unable to earn much on safe investments, some investors are accepting more risk to seek higher returns. Their money can inflate dangerous bubbles in real estate and stock prices.

Many economists say that to restore the economy’s full health, the government needs to spend more or tax less.

“The message is clear,” says Scott Minerd, global chief investment officer at Guggenheim Partners, in a research note. “The current monetary policy regime cannot succeed alone.”


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