Home WORLD AMERICA US and Europe can escape recession, says Fed official

US and Europe can escape recession, says Fed official

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A soft landing is possible in the United States and the European UnionSt. Louis Fed President James Bullard said during a speech at New York University.

For this it is necessary that the change monetary policy either correctly executedthat is, the shift from an accommodative policy during the pandemic to a firmer policy in the face of inflation.

A key element for this, he pointed out, is inflation expectations.

Indeed, if markets and consumers expect prices to remain on their upward trajectory, they will act accordingly: stores will continue to raise their prices, consumers will rush to buy before prices rise again, employees will ask for higher wages, etc.

Current inflation in the United States and the Eurozone is close to the (double-digit) levels of the 1970s underlined James Bullard.

The fight against inflation, at the time, was expensive to the US economy, with several periods of recession, but this is due, according to the official, to the fact that it Wasn’t believable at firstbecause few trusted the Fed to bring inflation down after letting it rise for a decade.

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Therefore, then-Fed Chairman Paul Volcker had to gain credibility hitting hard.

But the Fed and the ECB have considerable credibility compared to their 1970s counterpartscommented the president of the St. Louis Fed.

Inflation was stronger in the second quarter than I expectedTherefore we’re going to have to go a little higher than expectedhe also said, CNBC reported.

The key Fed rates, which set the tone for commercial banks in the United States and which are currently between 2.25 and 2.50%, will have to be raised to 3.75%-4% by the end of 2022, thus anticipated James Bullard.

Inflation in the United States reached 9.1% over one year in June, a record since 1981. In the euro zone too, it was propelled to a new record in July, at 8.9% over one year.

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