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

Economy Aug 27, 2022 02:35PM ET
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© 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.

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."

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

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Comments (9)
Susan Caldwell
Susan Caldwell Sep 02, 2022 6:34AM ET
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I lost over $200k to an unregulated broker who stocked my trading capital and denied me access to my account. But thank God I have recovered all my lost funds, through the help of a certified binary recovery expert. if his assistance is needed, kindly get in to (hack101  @  t u t a n o t a . com) .and he will guide you on effective steps to take and get back all your lost funds.
filipe moreira
filipe moreira Aug 28, 2022 10:25PM ET
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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.
True Stamp
True Stamp Aug 28, 2022 7:52PM ET
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Inflation expectations are already de-anchored when it comes to knowledgeable ppl. Blood in the streets will follow suit
Gabe Domen
Gabe Domen Aug 28, 2022 12:31PM ET
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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?
Jay Lee
Jay Lee Aug 27, 2022 5:57PM ET
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Ok, but Isabel Schnabel, you must know, that your income also needs to contract. Ok?
jason xx
jason xx Aug 27, 2022 3:52PM ET
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Nobody said they needed to get to 2% quickly
Steven ML
Steven ML Aug 27, 2022 1:54PM ET
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Most of us underestimated the persistence of inflation. Wrong, just the ones who have the power to do something about it.
Warm Camp
Warm Camp Aug 27, 2022 1:48PM ET
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Lip service. They plan fighting inflation after stagflation has been already arrived.
Casador Del Oso
Casador Del Oso Aug 27, 2022 1:40PM ET
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Hawkish pivot.
 
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