Business leaders in Davos aren’t thrilled about the global economic slowdown. But they’re even more worried about how central banks will respond.

“What scares me the most longer term is that we have limitations to monetary policy, which is our most valuable tool,” Ray Dalio, the billionaire founder of hedge fund Bridgewater Associates, said Tuesday at the World Economic Forum.

Central banks took dramatic and unusual steps to prevent economic collapse during the 2008 financial crisis. One decade later, most of the world’s big central banks are only just starting to reverse those moves, limiting their ability to respond to a new downturn.

Interest rates remain at historically low levels, giving central banks little room to make new cuts. Now that the economy is softening, it’s probably too late to get rates much higher.

“The only bank that has any room to maneuver is actually the Federal Reserve,” said Axel Weber, chairman of Swiss bank UBS (UBS).

No more rate rises?

The outlook for the global economy has dimmed significantly in recent months as trade tensions caused growth to slow in key countries.

The Chinese economy grew last year at its slowest pace in three decades, and 2019 could be even worse. Fang Xinghai, vice chairman of the China Securities Regulatory Commission, put a brave face on the slowdown Tuesday, saying that growth as low as 6% would not be “a disaster.”

But sentiment is darkening. The International Monetary Fund this week lowered estimates for global economic growth in 2019 to 3.5%, its second downward revision.

Economists fear that central banks waited too long to raise rates to more normal levels. At Davos, business leaders agreed.

“I think in general, monetary policy normalization is not an issue for this cycle. It’s for the next cycle,” said Weber. “They won’t get it done this time because the economy is weakening.”

The Federal Reserve raised interest rates four times in 2018. But its benchmark rate — currently set between 2.25% and 2.5% — is very low by past standards.

The European Central Bank and the Bank of Japan are even worse off. The ECB’s key lending rate is 0%, while its deposit rate is -0.4%. In Japan, short-term rates have been in negative territory since 2016.

“I think central banks are on hold,” Weber said. “The downside … is that the ECB will never leave negative territory if they don’t start raising rates this year.”

Another issue is that central banks still hold significant amounts of debt. The Federal Reserve has started to unload some of the bonds it bought to lower long-term borrowing costs. Central banks in Europe and Japan haven’t started this process.

Yet policymakers can’t move too quickly without risking market volatility, said Dalio. Analysts said the Federal Reserve’s decision to shrink its balance sheet factored into December’s sell-off.

“There was an inappropriate, mistaken desire to tighten monetary policy at a level that was faster than the capital markets could handle, and as a result there was a correction,” Dalio said.

Playing politics

On top of these tough conditions are political pressures that could make it harder for central banks to mitigate or respond to a slowdown.

In countries like India and Turkey, banks have faced threats of political interference, while President Donald Trump has repeatedly criticized the Federal Reserve.

“With the global economy likely to slow over the coming quarters, it seems more likely that central banks will continue to come under fire from populist leaders,” Neil Shearing, chief economist at Capital Economics, wrote this week in a research note.

Central banks could even be the source of the next crisis, according to Shearing, especially if governments pressure central banks to stimulate the economy.

“Moves to roll back regulatory changes made in the wake of the global financial crisis, or to loosen the credit spigots more generally, could inadvertently sow the seeds of the next crisis,” he said.