Monetary policy has reached its limits and having done what they can, central bankers should pass the baton to politicians to deliver growth through fiscal stimulus.
Platitudes they may be, though that has not stopped investors believing in them.
And if central banks are meant to be leaving centre stage, they are doing so painfully slowly. The Federal Reserve has embarked on a path to rate normalisation but is the only one doing so, and even then with due caution.
The Bank of Japan is upbeat about growth, but governor Haruhiko Kuroda is at pains to maintain monetary stimulus and keen to dispel talk of an exit strategy. Confidence in the eurozone economy is at its highest in 10 years, and yet the European Central Bank remains steadfastly committed to easy monetary conditions.
Sweden’s Riksbank has gone so far as to extend government bond-buying when indicators from its booming economy suggest it should be doing the opposite.
Worries about geopolitical risk may sway central banks to remain supportive of markets, but such an argument looks a little thin.
Investors have not behaved in the way policymakers might have feared. This week they rallied behind the euro and European stocks amid growing expectation that the market-friendly Emmanuel Macron becomes France’s president on May 7.
Indeed, the equity market has become fairly phlegmatic about supposedly shock events, as was indicted by rallies in global stocks following Brexit and Donald Trump’s election victory.
“It just seems that geopolitical risks have stopped having the kind of effects investors think they should on financial prices,” says Stephen Jen of Eurizon SLJ Capital.
That may be the fault of central bankers themselves. “Central banks’ unhealthy fixation on asset prices and their commitments to a permanent put on asset prices have created a situation whereby investors no longer look at valuation before they buy assets,” Mr Jen adds.
Nor are investors banking on politicians for growth. As the so-called Trump trade yields to Trump disappointment on the US president’s problems with implementing policy, investors are inclined to turn their gaze back to central banks to see how far and how fast reflation translates into policy normalisation.
The more policymakers try to put investors off the idea of monetary policy shifts, the less investors are listening. “The market now likely expects the BoJ’s next policy change to be tightening/normalisation, but Governor Kuroda’s stance suggests the likelihood of near-term normalisation remains low,” says Nomura strategy analyst Yujiro Goto.
Similarly, the euro’s post-French election rally looks extended, although the market is ready to give the currency another boost provided it detects an ECB signal on tapering.
No such signal came from ECB president Mario Draghi during Thursday’s press conference that followed the governing council’s expected decision to keep rates below zero. After an initial rally, the euro promptly fell as Mr Draghi highlighted no convincing upward trend for inflation.
Central banks might win more credibility with investors if they were not so fixated with inflation. They have been called “inflation nutters” by the likes of Reserve Bank of Australia governor Philip Lowe and former BoE governor Mervyn King.
Inflation may be coming in below their targets, but that is not to say inflation does not occur in other areas, notably housing. “Looking at the bigger picture appears to be something that some central bankers are better at than others,” says GAM investment director Adrian Owens.
Global growth is above trend and inflation is close to target yet policymakers still insist on seeing “the whites of the eyes of inflation” before moving on rates, Mr Owens adds. “The problem is that by then it will be too late.”
But is being too late preferable to being too early? The fear for central banks, says Joe Prendergast, financial markets strategist at Credit Suisse, is that they taper too soon and suffer a sharp currency appreciation. Mr Draghi was reminded by journalists that the ECB raised rates too early in 2008 and 2011.
“Central banks are all going extremely slowly, driven by this fear,” says Mr Pendergast. “To paraphrase Ben Bernanke, they want to be tightening too late.”