Limits of Central Power

Despite their enormous influence, central banks cannot solve every economic problem. They can make borrowing cheaper but cannot force businesses to invest or consumers to spend. Monetary policy is like pushing on a string.

Supply-side problems frustrate central bankers especially. When inflation comes from broken supply chains or energy shortages, raising interest rates punishes demand without fixing the actual cause. People still need to eat and heat their homes regardless of borrowing costs.

The pandemic revealed these limits starkly. Central banks flooded economies with liquidity but could not reopen factories, unclog ports, or train new workers. Fiscal policy — direct government spending — proved equally essential to economic recovery.