The BIS annual report was released today. In the section “Limits to Monetary Policy” we read:

The major advanced economies are maintaining extraordinarily accommodative monetary conditions, which are being transmitted to emerging market economies (EMEs) in the form of undesirable exchange rate and capital flow volatility. As a consequence of EME efforts to manage these spillovers, the stance of monetary policy is highly accommodative globally. There is widespread agreement that, during the crisis, decisive central bank action was essential to prevent a financial meltdown and that in the aftermath it has been supporting faltering economies. Central banks have had little choice but to maintain monetary ease because governments have failed to quickly and comprehensively address structural impediments to growth. But the need for prolonged accommodation has to be carefully weighed against the risk of generating distortions that will later produce financial and price instability.

JohnTaylor doesn´t miss the opportunity to advance his namesake rule as THE GUIDE to monetary policy:

At the meeting held today, the BIS issued their Annual Report which addresses key monetary policy issues. BIS analyses often contain useful warnings, including their prescient warning in the years around 2003-2005 that monetary policy was too easy, which turned out to be largely correct, as the boom and the subsequent bust made so clear. So the Annual Report is always worth reading. This is especially true of the Annual Report released today because it devotes a whole chapter to serious concerns about the harmful “side effects” of the current highly accommodative monetary policies “in the major advanced economies” where “policy rates remain very low and central bank balance sheets continue to expand.” Of course these are the policies now conducted at the Fed, the ECB, the Bank of Japan, and the Bank of England. The Report points out several side effects: First, the policies “may delay the return to a self-sustaining recovery.” In other words, rather than stimulating recovery as intended, the policies may be delaying recovery.

Second, the policies “may create risks for financial and price stability globally.”

Third, the policies create “longer-term risks to [central banks’] credibility and operational independence.”

Fourth, the policies “have blurred the line between monetary and fiscal policies” another threat to central bank independence.

Fifth, the policies “have been fueling credit and asset price booms in some emerging economies,” thereby raising risks that the unwinding of these booms “would have significant negative repercussions” similar to the preceding crisis, which in turn would feed back to the advanced economies

Just go tell that to the ‘people’ in this image Becky Hargrove and I love so much!