Tag: Monetary Policy

You thought 2022 was bad, with surging inflation, war in Ukraine, China’s slowdown, well economists seem to be lining up to suggest that 2023 could be even worse. On Tuesday IMF cut its forecast for worldwide growth in 2023 and said that policies to tame high inflation may add risks to the global economy. In their press conference the mood was, well, downbeat and concerned.

Bank of Spain Governor Pablo Hernandez de Cos said that some of the shocks in the European Central Bank’s downside scenario “may have materialized.” The ECB had published two different scenarios at its last meeting in October — a baseline and a downside version that foresaw stronger inflation and a contraction in economic output in 2023. Still, de Cos noted that energy prices are lower than in the central scenario.

The uncertainty justifies the ECB’s decision to abandon forward guidance and take a meeting-by-meeting, data dependent approach, he said, speaking at the Institute of International Finance conference in Washington. Asked about the implications of the latest market rout in the UK, de Cos said “if it’s properly managed, it shouldn’t be contagious.”

European Central Bank President Christine Lagarde said policy makers are determined to bring down inflation and argued that cooperation with other monetary authorities and fiscal policy is necessary to succeed.

“We need to have cooperation among ourselves — central bankers — to understand what the spillovers will be, what the spill backs could be, what impact we have on each other and what ramifications it will take because financial markets are extremely integrated and because our respective monetary policies have an impact on other countries around the world beyond,” Lagarde said at an event hosted by the Institute of International Finance.

“We also need to have cooperation between monetary policy and fiscal policy,” she said. “We have to act in a cooperative way because if we don’t, then monetary policy is going to have to be even more determined and and more decisive in its fight against inflation.”

Treasury Secretary Janet Yellen cited concerns about the potential for a breakdown in trading of US Treasuries, as her department leads an effort to shore up that crucial market.

“We are worried about a loss of adequate liquidity in the market,” Yellen said Wednesday in answering questions following a speech in Washington. The balance-sheet capacity of broker-dealers to engage in Treasuries market-making hasn’t expanded much, while the overall supply of Treasuries has climbed, she noted.

Even President Joe Biden said this week that the US, the world’s biggest economy, could suffer a “very slight” recession.

The producer price index for final demand climbed 0.4% from August, the first increase in three months, and was up 8.5% from a year ago, Labor Department data showed Wednesday.

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