A war is being waged against the central banks. Its focus is the policies they adopted in the aftermath of the global financial crisis of 2007-09 and the eurozone crisis that followed, especially quantitative easing or “l(fā)arge-scale asset purchases”. But complaints are also made against negative interest rates and even just low rates. These protests could cripple the ability of central banks to respond effectively to the next recession, let alone another crisis.

This is a concern because short-term interest rates may remain low by historical standards even as they “normalise” in coming years. Inflation is low and long-term real interest rates seem to have become structurally low, too. Short-term rates may not even get to, say, 3 per cent before the next downturn. This would give central banks little room to cut, by historical standards, before finding themselves back at zero. In the US, the Federal Reserve has cut by four percentage points, or more, between cyclical peaks and troughs.

This does not mean the central banks would, in reality, be out of ammunition. The possibilities are many, as former Fed chairman Ben Bernanke noted in a paper delivered in October at a conference on Rethinking Macroeconomic Policy at the Peterson Institute for International Economics in Washington. But some of the possibilities would be un-popular, perhaps so unpopular as to be politically infeasible.