Central banks almost face the same nightmares: the slowdown in growth and the economic downturn that threatens together metal. In the meantime, they are dealing with this problem in various ways.
Interest has already risen in Norway and in many developing countries, as the US Federal Reserve and the Bank of England have devised ways to regulate monetary policy. In contrast, the European Central Bank and the Bank of Japan are staying strong right now.
These diverse responses illustrate the difficulty of dealing with what Megan Green University of Harvard calls the central bank “” worst of the worst “- a moment when global financial institutions are slowing the growth and inflation.
The natural economic view is that central banks should do nothing to curb inflation-induced inflation, such as this week’s rise. oil prices up to a maximum of three years. As Dhaval Joshi, a senior analyst at BCA Research, puts it: “Responsiveness to low cost and strict monetary policy is extremely risky.”
A major problem is that monetary policy works to increase or decrease economic demand. If money grows too fast and creates inflation, lower interest rates reduce the desire for companies and families to waste or sell money by increasing borrowing costs.
The same is true when prices go up because sales chains are broken, electricity prices are rising or unemployment is high. In that case, financial statements should not be used to deal with fear.
Like Andrew Bailey, Governor of the Bank of England, they say“Economic regulations will not increase the availability of small chips, do not increase the amount of wind (no, yes), and do not create more HGV drivers.”
Sometimes strict rules of finance have worked. During the 1970s oil spill, strong action in the Bundesbank undermined inflation.
The central bank in West Germany got things right away, former ECB economist Otmar Issing said written, because its financial system provides “unquestionable advice to other financial decision makers and the general public and, for three years, has kept the right path”.
However in 2011, when the ECB decided to eliminate the bundesbank by raising interest rates on food and energy prices, it made what is considered a major mistake that exacerbated the euro crisis that year. The difference in 2011 was that there were no volatility due to the increase in contributions, which is why the rise in prices was unnecessary and harmful.
Ten years later, banks around the world are facing a similar challenge: check soon and may recover; Strong too late and inflation can stabilize.
In the US, Fed chair Jay Powell admitted last week The Fed was surprised by the amount of regulatory difficulties. However the Fed has also said it will “look” at the prices that are coming because it is confident that they will be phased out over time. That idea, meanwhile, is underpinned by long-term dietary strategies, which are expected in the economic downturn.
“What could have turned this into a dangerous and dangerous one,” says David Wilcox, a senior at the Peterson Institute for International Economics and a former Fed official, “would have been a relief to the expensive psychology” movements similar to those of competitors.
This could turn snow into “toxins” while anticipation of a slowdown will begin.
With the US economy growing at about 6% this year, and interest rates close to zero, Fed officials have already shown a three-fold lower interest rate before 2023. Whether initial moves are needed depends on companies replacing gummed-up supply chains and rising prices. by raising their prices, and initiating rising prices.
“It’s something I spend a lot of time thinking about,” Raphael Bostic, president of the Atlanta Fed branch, said last week.
Currently, the UK Bank of England is focused on the labor market. If they see that wages are rising without raising prices, this could indicate that demand is stronger than pay. In that case, it has shown that money may be needed.
In the eurozone, where unemployment is much higher than in the UK and lower unemployment, there is a different approach. ECB President Christine Lagarde last week confused it from changes in some central banks to economic activity, even the rise in euro prices reaches 13 years.
However, Lagarde said it was important to “pay close attention to temporary respite from human resources, as long as expectations for inflation remain stable” and its wages do not rise. He also said that there were only a few of these, however.
How long to still it is an open question. Clemens Fuest, director of the Ifo Institute, warned: “We don’t see my pay [lead to] the cost of goods, but at the same time corporations are waking up wanting to make more money. ”
In Japan, the differences in methods are still complex. Here the central bank, which has been struggling with inflation, could consider inflation and inflation expectations triggered by volatility.
Given the global economic slowdown by Covid-19, the pace at which economic growth is slowing and inflation is high, as well as the challenges of coping, there are many other challenges to the central bank.
“We are not struggling with the demand for inflation. What we are experiencing right now is astonishing, “said Jean Boivin, former Bank of Canada’s former ambassador to the BlackRock Investment Institute.”