Frankfurt, Germany –
The world’s leading central bankers on Wednesday said inflation was holding up longer than expected, but still downplayed fears of a recession from higher rates, and vowed they would not back off on big rate hikes.
Borrowing costs will remain high until the inflation beast abates, according to a panel discussion with Federal Reserve Chairman Jerome Powell, European Central Bank Governor Christine Lagarde, Bank of England Governor Andrew Bailey and Bank of Japan Governor Kazuo It is said that it was a message. Mr. Ueda.
“I think inflation needs to be as persistent as it is to sustain,” Lagarde said during a speech at the ECB’s annual policy meeting in Sintra, Portugal. “We must be resolute and determined to achieve the goals we set.”
“The bottom line is that policy hasn’t been restrictive enough for long enough,” Powell said despite the rapid rate hikes.
Mr. Powell, Mr. Lagarde and Mr. Bailey emphasized that a strong job market is the engine of inflation, with the driver of inflation shifting from energy and commodity prices to the services sector. Powell said there are 1.7 job openings for every unemployed person in the US, and Bailey said the UK labor market was “very, very strong”.
As workers seek higher salaries to meet rising costs of living, firms often pass on that extra labor cost through price hikes, potentially leading to a wage-price spiral that is central bankers’ worst nightmare. have a nature.
Most analysts believe that such a spiral has yet to develop. But with wage growth lagging inflation in many countries, workers are likely to continue to demand higher wages.
Ueda, who took office this year, said at an outlier on Wednesday that inflation has yet to call for a rate hike.
Some of the world’s top central bankers commented that inflation has turned out to be more widespread than originally expected, raising borrowing costs higher than many expected and likely to stay high for longer. emphasized that
Economic growth could be constrained by making it harder to borrow anything from car loans to credit cards, increasing the risk of a recession. Global growth is slowing, and the European economy has already contracted for two straight quarters, which is one of the definitions of recession.
But with low unemployment, there are few signs of a true recession. Central bankers said their economies were more resilient than expected and they were not expecting a contraction.
Lagarde said a slight drop in European output would look more like stagnation, and although the ECB’s base forecast does not include a recession, that is part of the risk.
Despite the risks of recession, central bankers expect rates to remain at their highest levels for some time, likely for longer than strong stock and bond markets expect. emphasized.
“I’ve always been interested in what the market thinks is that in a world where inflation is more persistent, peaks will be very short,” Bailey said.
According to the Bank for International Settlements, a global body of central banks based in Switzerland, almost 95% of the world’s central banks have hiked interest rates since early 2021, following the oil price inflation shock of the 1970s. is at a higher level than
In a report this week, the BIS called the policy “the most synchronized and intense monetary tightening in decades.”
The Fed has left its key policy rate unchanged after raising rates for the 10th time in a row this month. Powell said Fed officials wanted to wait a little longer to see how higher rates would affect the economy, suggesting a future rate hike at an alternative meeting.
“But I’m not going to consider traveling in consecutive meetings at all,” he said.
Meanwhile, the Bank of England surprised last week with its 13th consecutive 0.5 percentage point rate hike, while the ECB raised rates for the eighth time in a row this month. Central banks in Australia and Canada have resumed interest rate hikes after they had paused.
Inflation has fallen to 4% in the US, 6.1% in 20 euro-using countries and 8.7% in the UK, but still well above the banks’ 2% target.
Raising interest rates to counter rising inflation poses problems, including the risk of confusion among banks accustomed to years of low interest rates, as seen in the failures of Silicon Valley Bank and other U.S. banks.
Higher mortgage rates can also lead to lower home prices and unforeseen economic pressures for those with variable rate mortgages, which are common in some countries.
Italian Prime Minister Giorgia Meloni on Wednesday lashed out at the central bank’s anti-inflation measures.
“I don’t think the simple prescription of raising interest rates is the right way to go,” the prime minister told lawmakers. “We have to consider the risk that a rate hike hurts the economy harder than inflation, the cure worse than the disease.”
But central bankers say the pain will be worse if inflation spirals out of control.
“Our job is to get inflation back on target and we will do what is necessary,” Bailey said. “I understand the concerns that come with it, but unfortunately the one thing that always has to be said is that if we don’t get inflation back on target, it will be even worse.”
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Rugerber reports from Washington. Associated Press reporter Colleen Barry contributed from Milan.
