Tuesday, May 30, 2023
HomeEconomyECB Schnabel says central bank must tighten policy even in recession

ECB Schnabel says central bank must tighten policy even in recession

Balazs Koranyi

Jackson Hole, Wyoming. (Reuters) – Central banks around the world are at risk of losing public trust and must take strong action now to fight inflation, even if it drags down their economies, European Central Bank board member Isabel Schnabel said on Saturday. This is a recession.

Inflation is near double digits in many of the world’s major economies, and any decline is likely to be slow, keeping prices above the central bank’s target for years to come.

“Even if we enter a recession, we have no choice but to continue the normalization path,” Schnabel said at the Fed’s Jackson Hole Economic Symposium. “If inflation expectations are de-anchored, the impact on the economy will be more severe.”

She also cautioned central banks not to pause at the first sign of a possible shift in inflation pressures. She said policy Policymakers should signal their “firm determination” to bring inflation back to target quickly.

“If the public expects central banks to let their guard down in the face of risks to economic growth — that is, if they abandon the fight against inflation prematurely — then we risk seeing more in the future. A drastic correction,” Schnabel added.

Long-term inflation expectations above the bank’s target or “off the anchor” are on the rise, and now surveys suggest that inflation is eroding public confidence in central banks trust.

“The possibility and the cost of the current high inflation being entrenched in expectations are uncomfortably high,” Schnabel said. “In this environment, the central bank needs to act forcefully.”



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