US Federal Reserve Chairman Jerome Powell admitted at a forum organized by the European Central Bank (ECB) on Wednesday that current inflation had defied all predictions. Especially, he pointed out, the multiple crises in the supply of goods and services that occurred in a surprising way, caused the current rates of inflation, which were not seen a year ago. “We understand very well how little we know about inflation,” Powell said, adding that its growth was totally unforeseen.
Powell participated in the forum on changes in monetary policies in today’s world, together with the president of the ECB, Christine Lagarde; the general manager 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 world economies could slip into recession.. Financial institutions such as Deutsche Bank and Citigroup have estimated that there is a 50% probability of a global recession occurring, as reported by CriptoNoticias.
However, for Powell, the United States is in “good shape” to avoid the contraction of the economy. The Fed’s efforts are focused on bringing inflation back to the 2% target set by the Fed last year, Powell said.
The policy of monetary expansion and inflation
As an indication of how unforeseen current inflation rates have been for central banks, Powell cited the results of a survey that was conducted at the ECB forum last year, among 35 specialists, on the estimated inflation for 2021. . 34 of them estimated annual inflation below 4. “The actual figure was higher than 4 because the model used for the predictions, with data from the last 40 years, did not take into account the collapse that was happening on the supply side,” Powell argued.
Finding the right monetary policy to deal with soaring inflation is an “art”said the president of the ECB. “It is not a science. What we’re doing there is an art element,” Lagarde said. The European regulator is set to trigger its first interest rate increase in more than a decade, as inflation rises in the eurozone. Consumer prices rose 8.1% percent in May, an all-time high for the euro zone and well above the ECB’s 2% target.
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Other monetary authorities have recognized how little attention they have paid to policies that have great influence on the economy, such as money printing. Kristalina Georgieva, the 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 notorious printing of banknotes driven since 2020 by the pandemicwhich has contributed to widespread inflation in the world.