The Fed and especially the ECB are moving too slowly to cope with inflation.
European Central Bank President Christine Lagarde is playing and even higher-risk game than Federal Reserve Chairman Jerome Powell. Each clearly wants to deal with the accelerating inflation confronting their respective regions, but neither wants to risk a recessionary consequence. In their efforts to balance one risk against the other, both seem likely to fail and will get both inflationIn the United States, the Fed has only just begun to take an anti-inflationary heading. In response to an 8.
The ECB has not even gone this far. In the face of inflation of 7.5%, Lagarde has talked about ending the bank’s quantitative easing program, perhaps in May, perhaps not until September. Interest rate increases, she has stated, will wait until late this year, if then. Lagarde explains her lack of action by drawing two distinctions to the American situation.
In one context, Powell’s caution and Lagarde’s reluctance to do much at all are easy to understand. No policy maker wants to impose the kind of restraint that might precipitate recession or even an economic slowing. But unless they take the risk and move a lot further and a lot faster, neither has a chance of quelling the intensifying inflationary pressures confronting them.
These more significant and lasting pressures reflect years of misguided fiscal and monetary policies in both Europe and the United States. For over a decade now, governments on both sides of the Atlantic have pursued extremely stimulative fiscal postures that have created extremely wide budget deficits. Each continent has faced a succession of crises that seemed at each stage to require such policies, but the pattern over this long time has nonetheless created economic imbalances.
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