At some point tight monetary policy must end
THE DEBATE about the next round of interest rate hikes continues at the level of central banks in the US (FED), Europe (ECB) and UK (BoE). A new 10th or 11th rate hike will succeed in taming inflation or will this "game" of raising rates and watching how consumer prices react to inflationary pressures, continue?
EVERYONE WAS WAITING to hear what Mr. Jerome Powell would say at the economic policy conference in Jackson Hole. Unfortunately, he left no room for misinterpretation as he said that, despite the obvious efforts to reduce and stabilize inflation, it still remains at historically high levels, dashing the false hopes that it will stop the rise in interest rates that can inevitably lead to a deep recession in the US and the European economy.
CONSEQUENTLY, voices are growing in Europe that expect a new boost in interest rates. At some point, the strict & restrictive monetary policy must be completed if the inflation indicators show stabilization and reduction during this period of monitoring inflation.
THE AGONIZING question from economists and analysts to central bankers is how much longer will this policy continue, when objective signs of financial fatigue and economic slowdown are multiplying?
IF WE MEASURE and evaluate the results of the economic policy of the central banks so far, what safe conclusions can we draw? Have interest rate hikes really managed to control price growth? Structural inflation may argue yes, but if we were to include energy and food prices, we would see a completely different picture affecting the "wallet" and purchasing power of consumers in the Western (and beyond) world.
THERE are two main "camps" and schools of thought when it comes to inflation. One insists on continuing to raise interest rates to the point where inflation will be controlled, and the other camp argues that we have already reached this level of inflation control and that no further increase in nominal interest rates is needed, otherwise it will affect the US and the global economy, causing a prolonged recession.
GOALS are similar on the other side of the Atlantic. In the Old Continent, both the European Central Bank and the Bank of England have set similar targets. In other words, for structural inflation to reach 2% in order to stop the media-famous "tight economic policy".
WHAT DOES appear on the horizon, however, is that no one can say with absolute certainty about the ideal target which inflation must reach in order to stop rising interest rates that also affect government bond yields.
WHILE THE LOGIC of raising interest rates is always accompanied by the aim of avoiding a generalized recession, the targetting for inflation differs both historically and qualitatively when the fiscal policy followed by each country separately for example, becomes an unstable factor, influencing developments and of course inflation itself.
IF they do NOT set inflation targetting, on the other hand, central banks remain exposed to citizens and political authorities. Historically I think we are in a period where the very goals, due to the refusal of reality to follow theory and economic planning, tend to challenge the very economic policy of central banks.
-Efstathios Kassios (Author, Economist, EU Project Management, Strategist, Web Entrepreneur, Business Consultant)
Original article published in the Greek major business newspaper, Naftemporiki, September 8, 2023:
Σχόλια
Δημοσίευση σχολίου