Central banks are in a position to control systematic risk in the economy because they:

Central banks play a crucial role in managing monetary policy, which primarily involves the regulation of short-term interest rates. By adjusting these rates, central banks influence the cost of borrowing and the level of economic activity.

When short-term interest rates are lowered, it becomes cheaper for individuals and businesses to borrow money. This can stimulate spending and investment, which may help to mitigate recessions or economic slowdowns. Conversely, raising interest rates can help cool an overheating economy by making borrowing more expensive, thereby controlling inflation. Through these mechanisms, central banks can stabilize financial markets and manage systemic risks in the economy.

The focus on short-term interest rates is fundamental because they have a direct and rapid impact on financial conditions, consumer behavior, and investment decisions. In the context of the question, the ability of central banks to control interest rates directly positions them to manage broader economic risks effectively.