“We understand very well how little we know about inflation”


US Federal Reserve Chairman Jerome Powell admitted at a forum organized by the European Central Bank on Wednesday that the current inflation has deviated from all expectations. He pointed out, in particular, that the multiplicity of crises supplying goods and services that occurred suddenly caused the current inflation rates that we did not witness a year ago. “We understand very well how little we know about inflation,” Powell said, adding that its growth was not expected at all.

Powell participated in a forum on changes in global monetary policy today with European Central Bank President Christine Lagarde. The Managing Director of the Bank for International Settlements, Agustin Carstens, and the Governor of the Bank of England, Andrew Bailey.

The rapid tightening of monetary policy has raised fears that the world’s economies may slip into recession.. Financial institutions such as Deutsche Bank and Citigroup have estimated there is a 50% chance of a global recession, CriptoNoticias reported.

However, for Powell, the US is in “good shape” to avoid an economic downturn. Powell said the Fed’s efforts are focused on returning inflation to the 2% target the Fed set last year.

Monetary expansion and inflation policy

As an indication of the extent to which current inflation rates are not expected for central banks, Powell cited the results of a survey conducted at the European Central Bank Forum last year, among 35 specialists, on estimated inflation for 2021. 34 of them estimated annual inflation less than 4. “The actual number was higher than 4 because the model used for forecasts, with data from the past 40 years, did not take into account the collapse that was occurring on the supply side,” Powell argued.

Finding the right monetary policy to deal with high inflation is an ‘art’European Central Bank President said. “It is not science. What we do is an artistic component,” Lagarde said. The European regulator is set to launch its first rate hike in more than a decade, as inflation soars in the euro zone. Consumer prices rose 8.1% in May, the highest level ever in the Eurozone and well above the European Central Bank’s 2% target.

Other monetary authorities realized the lack of attention they paid to policies that have a significant impact on the economy, such as printing money. Kristalina Georgieva, director of the Executive Board of the International Monetary Fund (IMF), made a controversial comment during a live interview with CNBC in mid-April.

The official said she believes they are not paying enough attention to the unintended consequences of the decisions they make. This, in reference To the infamous printing of epidemic-led banknotes since 2020which contributed to the spread of inflation in the world.

Leave a Comment