Within an hour, as Americans slept soundly after watching fireworks displays, central bankers at the European Central Bank and People’s Bank of China cut interest rates while the Bank of England expanded its quantitative easing program. Almost unnoticed, central banks in Kenya and Denmark also cut rates.
These actions follow the expansion last month of the U.S. Federal Reserve’s own quantitative easing program. Australia and the central banks of four other nations cut rates last month and Switzerland’s massive easing program also continued.
Taken together, all of these actions make it looks like the world’s central bankers are worried about something.
By cutting interest rates, banks are demonstrating that they are not concerned about inflation. That means that an economic slowdown must be on the minds of the world’s policy makers.
Slowdowns generally cause unemployment to go up and stock prices to fall. While European debt issues are out of the headlines, the latest solution from Brussels is unlikely to offer a permanent solution. Efforts to keep European banks and governments solvent are not solving the double-digit unemployment problems that Europe faces.
Coordinated action by central banks is rare, but it was seen in 2008 when the global financial system nearly collapsed and on several other occasions when the economic situation looked dire. This latest action seems like a warning to investors that tough times are ahead and now might be a good opportunity to take profits in stocks.
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