The Nobel Prize in Economics, Paul Krugmannwas on a lightning trip to Mexico to participate in the Amafore 2022 convention, organized by the Mexican Association of Retirement Savings Fund Administrators (Amafore), as the star speaker for his knowledge and international recognition in economics.
The also professor at Princeton University is a serious critic of central banks, and on this occasion he took advantage of the occasion to insist on statements that he has already issued in other instances, although now adding a qualifier that had not been heard in other places. in which he appears and writes regularly.
Inflation and rates, consequence of inaction
Pau Krugman said to an express question that the current scenario related to high inflation in the world is a direct consequence of inaction and the fact that central banks underestimated what was first incipient price growthwhich was accelerated and was not considered until the evidence was so compelling that there were no other options but to act.
Consequently, central banks had to increase their interest rates to levels not seen in many years, “we are in a shameful situation with the high levels of inflation that we have today“said the 2008 Nobel Prize winner in economics.
“In this sense, virtually all central banks failed, from the largest and most important in the world such as the United States Fed, to those of small countries, including the European Central Bank; today they have no choice but to increase the reference interest rates; it is the way to send signals of coherence in the fight against high inflation, which by the way is and should be at this moment their top priority”, according to Krugman’s words.
Asked by the moderator about why this happened, that is, the fact that the banks allowed inflation to rise to the levels observed until recently, the Nobel Prize winner in economics said that they “simply underestimated it.”
the effects will take
For Krugman, the return of inflation to the objectives of the central banks is not a process that will be immediate, according to his calculations it will take at least 12 months after the greatest monetary tightening was reached (that is, when rates rise to their maximums in the cycle), so that the total effects are seen, even considered that the first noticeable effects will be a reality towards the end of the first quarter of 2023, and will be accompanied by a slowdown.
It might interest you: The ‘king of bonds’ warns of a “hard and prolonged” recession if the Fed raises rates to 5%
“The effects take a long time to appear, the high interest rates will be reflected in lower consumption and in a slowdown and even more unemployment, but it will not be immediate, it is something that will take time to be reflected.”
In this sense, Krugman did not want to rule out or affirm a possible recession in the United States, he considered that the conditions exist for something like this to happen in the American Union, although he also thinks that at least his country could avoid it at a certain moment, although he will not be able to avoid it. a decrease in economic activity, that is, lower growth.
They bury expectations of Galia Borja
Unintentionally, Paul Krugman buried the statements and expectations of the week, made by the deputy governor of the Bank of Mexico (Banxico), Galia Borja, who pointed out that the Central Institute could make interest rate adjustments of a different magnitude than the Federal Reserve Bank of the United Statesif the economic variables improve.
The Nobel Prize winner in economics said that Banxico has no choice but to follow the Fed; in fact, he stated that there could be serious consequences for the economy if Banxico decided to stop following the Fed’s footsteps, or slow down. “Banco de México is not obliged, but it must follow the Fed, I don’t see that it has more options in the current context,” said Krugman.
Change in Amafore
During the development of the event, the president of the union, Bernardo González Rosas, confirmed his departure from Amafore, a position he reached in January 2019, 3 years ago. The executive did not indicate the reasons for his departure, although apparently it was a personal decision. He transcended that the selection process has already been carried out for a few weeks and that there is already a final shortlist from which the next leader of the Afores union will emerge.
MORE NEWS: