"Central Bank Governors Agree: 'The Era of Low Interest Rates and Low Inflation is Over' [End of Low Inflation]"

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] The heads of monetary policy at major central banks in the United States, Europe, and the United Kingdom have declared that the era of 'low interest rates and low inflation' has come to an end. Amid the trend of deglobalization and recent large-scale geopolitical shocks such as the COVID-19 pandemic and the Ukraine crisis, the entire world is now entering a 'new era of inflation,' they warned.

Christine Lagarde, President of the European Central Bank (ECB), stated at the ECB Annual Forum held in Portugal on the 29th (local time), "I do not think we will return to the low inflation period before COVID-19," adding, "The enormous geopolitical shocks and the forces unleashed by the pandemic will change the environment of our economy."

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), who participated in the same session, also diagnosed that the low inflation environment has disappeared, saying, "The economy after the pandemic is operating under different forces than before." He pointed out supply and demand distortions across the economy and supply chain fragmentation due to deglobalization, mentioning "changed dynamics" and that "it is difficult to respond with the existing monetary policy methods." This is a forecast that the monetary policy flow will inevitably change drastically. Andrew Bailey, Governor of the Bank of England (BOE), defined the post-pandemic economic operation as "a sea change."

The forum took place amid major central banks, including the Fed, pushing or planning high-intensity tightening to curb soaring inflation. The central bank leaders gathered in one place expressed concerns that the inflation shock could become entrenched and reaffirmed their policy of raising interest rates.

Chairman Powell disagreed that rapid tightening is the greatest risk, stating, "The bigger mistake would be failing to achieve price stability." This is a message that they are willing to accept the risk of recession during the rapid interest rate hike process. Christine Lagarde, who announced the first interest rate hike in 11 years at the July meeting, and Andrew Bailey of the BOE, who has implemented five consecutive rate hikes, also indicated that they could take stronger measures depending on inflation indicators.