Now, as top policymakers gather for the Kansas City Federal Reserve’s annual monetary policy conference in Jackson Hole, Wyoming, the US central bank looks like it might manage a “soft landing” for its own economy, but the outlook for Europe is far more worrying.
Much of the world is facing the fastest price growth since the early 1980s, raising fears of a repeat of that era’s wage-price spiral phenomenon that required double-digit interest rates – and painful recessions – to restore price stability.
That leaves many of the central bankers heading to the Grand Teton mountains this week hoping today’s inflation pressures will abate quickly enough to allow them to counter the downturns anticipated in economies around the world.
“They are caught between a coming recession and sky-high inflation. Their first concern is to react to high inflation,” said Holger Schmieding, chief economist at Berenberg. “Once the recession is clearly there, the concern will shift.”
That shift, though, could well be asymmetric, with the Federal Reserve in particular signalling an unwillingness to quickly reverse gears.
While there are some indications the Fed may soon dial down its rate hikes from the 75-basis-point pace at its last two policy meetings, Fed Chair Jerome Powell may use his keynote speech to the symposium on Friday to cool expectations among investors of cuts to borrowing costs in 2023.
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