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Mohamed El-Erian

Global faith in the central bank lever is misplaced

Markets and commentators are buoyant in expectation of interest rate cuts this year. But they are overestimating how much power central banks really have over economic outcomes.

Behavioral economists have popularised the term “recency bias” to describe our tendency to be disproportionately influenced by the latest events compared to earlier ones. Could this cognitive phenomenon explain why numerous analysts have a rather optimistic tilt for the world economy in 2024? Or are there really positive trends counterbalancing the obvious and mounting challenges to global growth?

Central banks can stop disasters, but they cannot create new growth.  AP

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Mohamed A. El-Erian, is president of Queens’ College at the University of Cambridge and a professor at the Wharton School of the University of Pennsylvania

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    Original URL: https://www.afr.com/policy/economy/global-faith-in-the-central-bank-lever-is-misplaced-20240115-p5exbu