Central banks must tighten policy even in recession, says ECB’s Schnabel

JACKSON HOLE, Wyoming – Central banks around the world are at risk of losing public confidence and must act strongly to combat inflation, even if it drags the economy into recession, they said Saturday. rice field.

Many of the world’s major economies are likely to experience a slowdown in inflation as inflation approaches double digits and prices remain above central bank targets over the next few years.

“If we were to go into a recession, we would have little choice but to continue on the path of normalization,” Schnabel told the Federal Reserve’s Jackson Hole economic symposium. “Anchoring inflation expectations would make the economic impact even worse.”

She also cautioned against central banks pausing at the first sign of a potential turn in inflationary pressures. she said.

“If the public expects central banks to let down their guard in the face of risks to economic growth – meaning that central banks abandon the fight against inflation prematurely – there will be more sharp adjustments ahead,” Schnabel said. There is a risk of being seen,” he added.

She argued that there was a growing risk that long-run inflation expectations would outpace banks’ targets, or “unanchor,” and current research shows that inflation is reducing public confidence in central banks. It has been.

“Both the likelihood and the cost of the current high inflation entrenching expectations are uncomfortably high,” Schnabel said. “In this environment, central banks need to act strongly.”

Baraz Colany