[Economics] There is no precedent for central banks successfully controlling inflation

[Draeno]

 

 

or there is recent precedent for a central bank successfully defeating inflation without "substantial economic sacrifices or recession," said a report released Friday to Federal Reserve policymakers.

(Read: Usury rate cap in the country reaches 46.26% in March).

Citing hundreds of historical cases from the 1950s in major economies, the report concludes that central banks "may have trouble meeting disinflation targets without significantly sacrificing economic activity."

This report, prepared by economists at a seminar organized in New York by the Booth School of Business at the University of Chicago, estimates that the Fed "will need to significantly realign its policies to achieve its inflation target by the end of 2025."

Inflation rose again in January in the United States, reaching 5.4% in 12 months, according to the PCE index published this Friday and a reference for the Fed, which wants to bring it to around 2%.

(See: The factors that would drive investors away from Colombia).

The economy has remained solid despite the rate hikes that the Fed has been carrying out for almost a year in order to make the cost of credit more expensive and thus slow down consumption and therefore pressure on prices.

The analysis identified parallels between the current context and that of the late 1970s, when then-Fed Chairman Paul Volcker dramatically increased interest rates to counter rising inflation. And like 40 years ago, the Fed did not react quickly enough, the report says.

The Volcker case "shows how costly disinflation can be once a central bank has lost credibility to control inflation," the report said. However, the "unprecedented" nature of the pandemic made the current period different, stressed Philip Jefferson, one of the Fed governors, present at the seminar.

(Read: More consumption and less savings will keep inflation and rates rising).

Economic models, "while still useful in many respects, are more difficult to apply" and "must be used with careful interpretation and judgment," Jefferson cautioned, warning of the need for "careful examination of real-time data ".

 

https://www.portafolio.co/economia/alta-inflacion-por-que-historicamente-ningun-banco-central-ha-podido-controlarla-con-exito-579022