‘Central bankers can’t afford another setback’

Bloomberg

The world’s central bankers are learning that there’s virtually no room for error as they try to find a way out of a decade of extreme monetary stimulus. That’s the message from Norway’s central bank governor, Oystein Olsen, who also oversees the country’s $1 trillion sovereign wealth fund.
“Unexpected things can happen, and the warning, call it a small warning, I deliver here is that it would be bad timing if we now should see a bigger downturn,” Olsen said in an interview in conjunction with his annual speech in Oslo. That’s “because fiscal policy is limited and rates are still low.” “It will be a concern if there’s a large setback before monetary policy is normalized,” he said.
Like the Federal Reserve and other central banks, Olsen is preparing to raise interest rates this year. For Norway, it will be the first time in seven years that policy is tightened as western Europe’s biggest oil economy emerges from a protracted downturn.
But this month’s eruption in volatility shows central bankers have a lot to fear. “Strengthening global growth will help reduce the risk of sharp movements in equity markets,” Olsen said in the speech. “But a bigger correction so far cannot be ruled out.” Nevertheless, Olsen says it’s a “good sign” that rates will now probably be raised. Growth has gained a “firm footing” and unemployment has reached a “normal level,” he said.