European Central Bank President Christine Lagarde expects the economic downturn facing most Western economies to continue, saying the world may be entering “an age of shifts in economic relationships and breaks in established regularities.”
“If we are in a new age, past regularities may no longer be a good guide for how the economy works,” Lagarde said, speaking at a central bank symposium in Jackson Hole, Wyoming, also attended by US Federal Reserve Chairman Jerome Powell, on Friday.
“We…need to be open to the possibility that some of these changes could be longer-lasting,” Lagarde added, citing a “deepening geopolitical divide and a global economy that is fragmenting into competing blocs.”
“If we also face shocks that are larger and more common – like energy and geopolitical shocks – we could see firms passing on cost increases more consistently,” the banker said. “If global supply does become less elastic, including in the labor market, and global competition is reduced, we should expect prices to take on a greater role in adjustment,” she added.
“Central banks have responded by tightening monetary policy and, while progress is being made, the fight against inflation is not yet won,” Lagarde said, echoing Powell’s sentiments that interest rate hikes will continue to be made to try to get a handle on inflation. In the case of Europe, she said, the ECB will keep setting rates “at sufficiently restrictive levels” to try to get Eurozone inflation down to two percent.
Source: Sputnik
