Post by account_disabled on Feb 22, 2024 0:51:34 GMT -5
I know it's complicated." That was European Central Bank President Christine Lagarde's response to a question about the outlook for monetary policy earlier this month. Lagarde is not the only central bank chief pointing out the complex road ahead as her institutions embark on the “last mile” of the battle against high inflation. At last month's Jackson Hole central bankers conference, Federal Reserve Chairman Jay Powell concluded his speech by stating that “we are sailing by the stars under cloudy skies.” darling". On Wednesday he stated six times the need to “proceed with care.” The challenge for the ECB and the Federal Reserve goes beyond the economic fog in which they must design and conduct their policies. The stars that guide central bankers move in unpredictable directions. It is part of a broader set of challenges to domestic policymaking that has reared its ugly head over the past 15 years: headwinds compounded by weak growth and the fragmentation of the global economy.
These complications, along with the recent rise in oil prices, deterred the ECB from interrupting its rate hike cycle on September 14. They prevented the Federal Reserve from signaling an end to Pakistan Phone Number its rate-hiking cycle at this week's policy meeting, deepening markets' understanding that these higher rates will be with us for longer. The same was true in the United Kingdom, where the Bank of England could only muster a 5-4 majority of policymakers in favor of a pause in rates. Shame on our central banks. Having been forced into a highly concentrated increase cycle after mischaracterizing inflation as “transitory,” they are not sure how much of the “long and variable” impact of tighter monetary policies has already manifested in the economy. Their confidence in projections that have always been wrong has been weakened. Banking regulation and supervision struggled, as demonstrated by the financial turmoil earlier this year.
Major central bank yet has control over the cumulative effects of its rate hikes on nonbank sectors with high levels of debt, such as commercial real estate. The “last mile” in this inflationary journey is the most complicated, and even more so due to the lack of consensus among economists about the stars that normally guide monetary policy. They disagree on the level of the neutral interest rate, or R-star, the level at which monetary policy is neither accommodative nor restrictive. A growing number of economists are willing to question whether 2 percent is still the right inflation target in a world undergoing so many structural changes. And then there is the Federal Reserve's “monetary policy framework,” which, although only three years old, requires an urgent update. The fluidity of monetary policy is part of a larger challenge many countries face. It's a phenomenon that former British Prime Minister Gordon Brown, Nobel laureate Michael Spence.
These complications, along with the recent rise in oil prices, deterred the ECB from interrupting its rate hike cycle on September 14. They prevented the Federal Reserve from signaling an end to Pakistan Phone Number its rate-hiking cycle at this week's policy meeting, deepening markets' understanding that these higher rates will be with us for longer. The same was true in the United Kingdom, where the Bank of England could only muster a 5-4 majority of policymakers in favor of a pause in rates. Shame on our central banks. Having been forced into a highly concentrated increase cycle after mischaracterizing inflation as “transitory,” they are not sure how much of the “long and variable” impact of tighter monetary policies has already manifested in the economy. Their confidence in projections that have always been wrong has been weakened. Banking regulation and supervision struggled, as demonstrated by the financial turmoil earlier this year.
Major central bank yet has control over the cumulative effects of its rate hikes on nonbank sectors with high levels of debt, such as commercial real estate. The “last mile” in this inflationary journey is the most complicated, and even more so due to the lack of consensus among economists about the stars that normally guide monetary policy. They disagree on the level of the neutral interest rate, or R-star, the level at which monetary policy is neither accommodative nor restrictive. A growing number of economists are willing to question whether 2 percent is still the right inflation target in a world undergoing so many structural changes. And then there is the Federal Reserve's “monetary policy framework,” which, although only three years old, requires an urgent update. The fluidity of monetary policy is part of a larger challenge many countries face. It's a phenomenon that former British Prime Minister Gordon Brown, Nobel laureate Michael Spence.