Simple language is not something that government agencies often use. The government has a lot to lose, so it has to pay very close attention to what it says. But the pandemic and high inflation have major consequences. Because of this, Federal Reserve Director Jerome Powell delivered a surprisingly direct speech.
High inflation continues
The head of the US central bank spoke at a forum for central bankers in Portugal, writes CNN† He was asked whether the rapid rise in interest rates could cause a recession in the economy. He replied that that is not the Fed’s intention, but it is certainly a possibility. ‘Global situations’ complicate a so-called ‘soft landing’, in which inflation falls without affecting the economy and the job market too much.
†The economy is driven by very different reasons,” Powell said. We don’t know if we’re going back to something that resembled or was a bit like what we had before. In addition to the problems with supply chains triggered by the pandemic, the war in Ukraine has contributed enormously to food inflation. Last month, the Federal Reserve raised interest rates by 0.75%. That may not sound like much, but it’s the biggest increase since 1994†
“There is a risk that we let interest rates rise too much, but the biggest mistake we can make is if we fail to restore price stability,” Powell said.
Christine Lagarde of the European Central Bank (ECB) and Andrew Bailey of the Bank of England were also present. Lagarde expects we probably won’t be going back to the pre-2020 period of low inflation. She also thinks the war is ‘changing the landscape we find ourselves in’.
The world is different now
The language is very direct. The central bankers are actually making it clear that they will continue to raise interest rates until inflation falls. This could lead to an economic crisis, but at the very least inflation would be lower. Still, they don’t expect inflation to fall to around pre-2020 levels.
Basically they say that the pandemic and the war have changed the world permanently. It is not yet clear what will happen to inflation in the coming months, but it is clear that the outcome will not be easy either way. For now, it doesn’t sound like good news for cryptocurrencies, unfortunately.