The opulent tranquility of Jackson Hole, in Wyoming, risks detonating with the tension surrounding the annual meeting of the central bankers scheduled for August 25 to 27. The latter are today the target of all criticisms, failing to have anticipated the thunderous return of inflation, at the end of the crisis caused by the pandemic of Covid-19. They are accused of having allowed to escape the cage of guiding rates a monster from which they would today be unable to regain control, or only at an exorbitant cost for economies.
It is true that the assessment of central banks for the past decade legitimately calls for criticism. Long before the era of “whatever it costs” caused by an unprecedented health shock in the modern era, the maintenance of a free money policy, or almost, long after the 2008 financial crisis caused many disturbances. Its effectiveness has remained questionable, not to mention its negative effects on inequalities. In addition, inflation was perhaps invisible in terms of consumer prices, but present through the irrational increase in real estate actions and prices.
He also makes little doubt that the central bankers, starting with the most powerful of them, Jerome Powell, who heads the Federal Reserve in the United States, have gone into their reading of the first inflationary signs Appeared in the year 2021. They invariably presented them as conjunctural, linked to bottlenecks attributable to the strong economic rebound that caused the gradual disappearance of the health crisis, before being forced to admit that they became structural.
At their discharge, this myopia was massively shared. And the gigantic recovery plan adopted in 2021 by the American Congress under the leadership of Joe Biden did not contribute little to the return of inflation in the United States. Finally, it was impossible to anticipate the war in Ukraine and the inflation accelerator that the increased and durable tensions have formed on the energy prices that the Russian invasion triggered.
The risk of recession
Even if the lessons of this decade of magic money must be drawn, priority must now focus on the battle to fight against an increase in prices which already reaches levels that are difficult to sustain in many countries. Now there is no alternative to an increase in rates to hope to break this spiral.
The risk is well known. This increase is likely to result in a cascade of recessions. The rise in rates operated by the Federal Reserve of the United States has already been followed by the contraction of the gross domestic product during the first two quarters of the year, even if the job market showed its resilience by completing D ‘Erase in July all the destruction of posts trained by the pandemic. The slowdown in the price increase in August, however, constitutes an encouraging first signal, which must be confirmed.
The euro zone, which has delayed again, faces the same challenge, and the same risk of stagflation. That her currency is now struggling against the dollar, for the first time in two decades, says his difficulties. Everywhere, the bitter pill of the increase in rates should be administered with the concern of avoiding a social breakage which would make it unacceptable, but it should remain preferable to an inflation out of control.