WASHINGTON (AP) — Six years after the Great Recession ended, the world's major central banks still seem to be in crisis mode — keeping interest rates near all-time lows to try to fuel economic growth.
The pressure to keep rates down is being driven by weak global demand, ultra-low inflation and an oversupply of goods from oil to steel. On Wednesday, the Federal Reserve is expected to say it's maintaining its key short-term rate at a record low near zero, where it's been since the depths of the recession in 2008.
To many analysts, there's a compelling reason for rates to stay this low: Most major economies around the globe remain weak — perhaps too weak to thrive without the stimulus of super-low rates, which are meant to boost borrowing and spending.
Yet these policies have drawn warnings from critics. Some worry about igniting inflation. Many also argue that when bond yields stay too low for too long, investors pour money into riskier assets that promise richer returns. At some point, another bubble — like those that torpedoed the housing market a decade ago and triggered the dotcom bust of 2000 — could form in stocks, bonds, housing or some other asset.
David Jones, chief economist at DMJ Advisors, cautions that the Fed's easy-money policies have already artificially inflated the price of U.S. stocks and bonds.
"The Fed is causing bubbles in the financial markets, distorting rates low and stock prices high," Jones says.
For now, across the world, low rates appear here to stay. Last week, Mario Draghi, president of the European Central Bank, suggested that the ECB would expand a bond-buying program meant to drive down long-term rates and aid Europe's fragile recovery. The Bank of Japan appears ready to expand purchases of government bonds and other assets when it meets Friday. The People's Bank of China just announced plans to cut rates for the sixth time in a year.
The Fed, by contrast, had long seemed inclined to raise rates this year for the first time in nearly a decade. But fears that China's economy, the world's second-largest, is slowing more sharply than expected, has raised concerns about the global economy and its potential effects on the United States. Many Fed-watchers now foresee no rate hike before 2016.
The International Monetary Fund has lowered its forecast for international growth this year to 3.1 percent, which would be the weakest pace since the recession year of 2009.
"Global demand is very weak," says Daniel Alpert, managing partner at Westwood Capital.
So far, the inflation threat is nowhere in sight. Indeed, central banks worry that inflation is too low, not too high. In Europe, inflation last month was running at minus 0.1 percent annually.
In the United States, the inflation gauge the Fed monitors most closely was up 0.3 percent in August from a year earlier — a fraction of the central bank's 2 percent target.
Ultra-low inflation signals fragility in the world economy. When prices aren't rising enough — or are actually falling — some consumers delay purchases to await better deals later. Debtors also have a harder time repaying loans.
A world tour of easy-money policies:
In Europe, banks are still recovering from the financial crisis of 2007-2009. Damaged banks are reluctant to lend. Worried consumers and businesses don't want to borrow.
Without credit flowing into the economy, growth has stalled: Collectively, the economies of the 19 countries that use the euro currency shrank in 2012 and 2013 and grew just 0.9 percent last year.
"They have really struggled to maintain any kind of momentum," says Carl Tannenbaum, chief economist at Northern Trust.
By buying 60 billion euros a month in bonds, the ECB hopes to reduce longer-term interest rates, encourage businesses and consumers to borrow and energize growth.
Last week, Draghi suggested that the ECB would consider expanding the bond purchases or taking other steps such as cutting a key interest rate.
"We are ready to act if needed," he said.
The Bank of Japan has struggled to revive economic growth and lift inflation. Japan has endured decades of stagnation, its economy constrained by a shrinking population, economic inefficiency and public doubts that growth and prices will ever grow quickly again.
In 2013, the central bank began buying bonds and other securities to reduce rates.
"But the endgame — steady economic growth along with 2 percent inflation — has yet to materialize," Faraz Syed, an economist with Moody's Analytics, says. Indeed, Japanese consumer prices were up just 0.2 percent in August from a year earlier.
Economists at Barclays, who have forecast that Japan's economy didn't grow from July through September, expect the Bank of Japan to expand purchases of government bonds and stock funds Friday.
Even China's powerhouse economy has slowed for four straight years and is expected to decelerate again this year and next. China's troubles have inflicted considerable collateral damage: The economies of countries that supply raw materials to the world's second-biggest economy have been damaged.
The slowdown is partly deliberate. Beijing wants to reduce China's dependence on exports and often-wasteful investments in real estate, factories and infrastructure. Instead, it wants slower, more sustainable growth built more on consumer spending.
To keep the economy from slowing too much during the transition, the People's Bank of China started cutting rates last year. The government has also launched a mini-stimulus program to try to boost the economy through public works projects.
The Fed hasn't raised rates since 2006. And it's kept the short-term rate it controls near zero for almost seven years. Over that time, the American economy has strengthened considerably. Unemployment has dropped to a seven-year low of 5.1 percent.
Given the economy's gains, many analysts had expected the Fed to have raised rates already. Last month, Fed Chair Janet Yellen herself said she expected a 2015 rate hike.
But Fed policymakers balked at raising rates last month, spooked by the deteriorating world economy. Few expect them to move this week, and it looks increasingly as if the policymakers might postpone a rate increase until next year.
The Fed has been urged to delay by IMF Managing Director Christine Lagarde, who warned that the risks of raising rates prematurely and possibly causing economic damage outweigh the risks of waiting too long.
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