Federal Reserve chairman Jerome Powell. He says central banks are determined to bring inflation back under control. Photograph: Manuel Balce Ceneta/APCentral banks are determined to bring inflation back under control. This was the message from Jay Powell, chair of the Federal Reserve, and Isabel Schnabel, an influential member of the board of the European Central Bank, at the Jackson Hole symposium last week.
It is not difficult to understand why central bankers say what they are saying. They have a clear mandate to control inflation on which they have failed to deliver. Not just headline inflation, but core inflation has been above target for a prolonged period. Second, they misread short-term expectations, focusing too much on the mean rather than the shift towards higher expectations at the upper edges of the distribution.
In essence central banks are playing catch-up because they fear that they risk losing credibility and if they did the costs of regaining it would be far higher than of acting now. This fear is reinforced by the risks to wage inflation from the combination of high price inflation with strong labour markets. The fact that higher energy prices raise the prices of essentially everything makes this risk bigger. This could then start a second-round wage-price spiral.
In the US there is a particularly optimistic view of “immaculate disinflation”, promulgated by the Federal Reserve. This debate focuses on whether it is possible to reduce labour market pressure by lowering vacancies without raising unemployment. Here too the balance between the impact on supply and demand is unclear. If the impact of higher energy prices on the former is larger than on the latter, demand will need to be curbed too.
IrishTimes Surely it’s ok. The govts that took credit for the boom can easily manage the downturn. Oh. Unless they’ve no idea about controlling either. Hmmmm
This is a man made crisis due to sanctions , the war and insane lefty Green policies which guaranteed disaster . We need new governments ran by competent people who under economics
Why is the world so messed up right now ? Has it always been like this and now we see it or what
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