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Central banks must tighten policy even into a recession, ECB's Schnabel says

Published 08/27/2022, 01:29 PM
Updated 08/27/2022, 02:35 PM
© Reuters. FILE PHOTO: Isabel Schnabel, in Frankfurt, Germany November 22, 2019. REUTERS/Ralph Orlowski/File Photo

© Reuters. FILE PHOTO: Isabel Schnabel, in Frankfurt, Germany November 22, 2019. REUTERS/Ralph Orlowski/File Photo

By Balazs Koranyi

JACKSON HOLE, Wyo. (Reuters) -Central banks around the world risk losing public trust and must now act forcefully to combat inflation, even if that drags their economies into a recession, European Central Bank board member Isabel Schnabel said on Saturday.

Inflation is close to double-digit territory in many of the world's top economies and any decline is likely to be slow, keeping prices above central bank targets for years to come.

"Even if we enter a recession, we have little choice but to continue the normalization path," Schnabel told the U.S. Federal Reserve's Jackson Hole Economic Symposium. "If there was a de-anchoring of inflation expectations, the effect on the economy would be even worse."

She also cautioned central banks against pausing on the first sign of a potential turn in inflationary pressures. Policymakers should instead signal their "strong determination" to bring inflation back to target quickly, she said.

"If the public expects central banks to lower their guard in the face of risks to economic growth – that is, if they abandon their fight against inflation prematurely – then we risk seeing a much sharper correction down the road," Schnabel added.

© Reuters. FILE PHOTO: Isabel Schnabel, in Frankfurt, Germany November 22, 2019. REUTERS/Ralph Orlowski/File Photo

She argued that the risk is rising that longer-term inflation expectations move above the bank's target, or "de-anchor," and surveys now suggest that inflation is denting public trust in central banks.

"Both the likelihood and the cost of current high inflation becoming entrenched in expectations are uncomfortably high," Schnabel said. "In this environment, central banks need to act forcefully."

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she is saying that so ECB keeps it's interest rate ratio to world's yield at the lowest level, so markets participants are forced to not dump european bonds... it a relative perception of risk... a manipulated one. I dare the ECB to be so hawkish all alone, regardless of what the others central banks are doing... if they really believe what they are saying... facts don't add up.
Inflation expectations are already de-anchored when it comes to knowledgeable ppl. Blood in the streets will follow suit
Fine, we are in sync knowing how bad is inflation and its effects. But was fed geniuses that brought as here and all of them seem having no personal consequences. Is this the new aristocracy?
Ok, but Isabel Schnabel, you must know, that your income also needs to contract. Ok?
Nobody said they needed to get to 2% quickly
Most of us underestimated the persistence of inflation. Wrong, just the ones who have the power to do something about it.
Lip service. They plan fighting inflation after stagflation has been already arrived.
Hawkish pivot.
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