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The United States and the European Union can avoid recession and achieve a soft landing by bringing inflation down to an acceptable level, a US central bank official said Tuesday. headline news
“A soft landing is feasible in the US and the EA (euro area),” St Louis Federal Reserve President James Bullard during a speech at New York university.
But getting there requires that the “shift” in monetary policy, as central banks aggressively hike interest rates to slow runaway inflation, is “executed well.”
A key factor will be managing inflation expectations, he added.
If markets and consumers expect prices to continue to rise then they will act accordingly, with stores raising prices, people rushing to buy goods before prices go up, and employees demanding higher wages, among other things.
“Current inflation in the US and the euro area is near 1970s levels,” Bullard said.
The fight against inflation then was “costly” to the US economy, with multiple periods of recession, he said, attributing that to the Fed’s lack of “credibility.”
“Few believed that the Fed was serious about reducing inflation after an entire decade of allowing inflation to build.”
As a result, then-Fed Chair Paul Volcker had to “earn credibility” through aggressive fiscal policy.
But “the Fed and the ECB (European Central Bank) have considerable credibility compared with their 1970s counterparts,” Bullard said.
He acknowledged that inflation had come in “hotter” than expected during the second quarter of 2022. As a result, the Fed will have to hike interest rates “a little bit higher” than Buller had initially projected.
The Fed’s key rates, which set the tone for commercial banks in the United States, are currently between 2.25 and 2.50 percent.
They will have to be raised to between 3.75 and four percent by the end of the year, Bullard said.
US inflation hit 9.1 percent in June, the highest in four decades.
Inflation also reached a new record in the eurozone in July, coming in at 8.9 percent.
© Agence France-Presse. All rights are reserved.
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Notes from APS Radio News
During the past few years, a number of the world’s central banks have engaged in massive programs of monetary expansion, even as jobs and businesses were lost by way of virus-related restrictions and quarantines.
For example, beginning in March of 2020, the US Federal Reserve engaged in a substantially greater program of monetary expansion by purchasing hundreds of billions of dollars of Treasury and corporate bonds.
Since the early part of March 2020 to date, the Federal Reserve has added over $4 trillion to its holdings.
In particular, whereas on or about February 24, 2020, the holdings of the Federal Reserve stood at $4.2 trillion, on or about January 17, 2022, the holdings of the Federal Reserve stood at about $8.9 trillion.
As well, the Federal Reserve has kept interest rates low.
Recently, Jerome Powell, the head of the Federal Reserve, said that he wasn’t concerned about inflation and that, for the none, the Federal Reserve would keep interest rates at low levels.
Another examples is that of the Bank of Japan.
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According to Fred Economic Data, as of October 2021, the Bank of Japan’s holdings were about $6.4 trillion or about 725 trillion Yen.
In the early part of March 2020, the Bank of Japan’s holdings were $5.3 holdings. During the period mentioned, the Bank of Japan added over one trillion dollars to its holdings.
A number of corporations have been borrowing money inexpensively and have been purchasing their own shares of stocks, increasing share prices of stocks.
Still, there are concerns among investors.
A number of them have expressed concerns about central banks’ eventually increasing interest rates, as, during the past year, inflation levels have been increasing.
The combination of low interest rates, expansive monetary policies, fiscal stimulus programs, which themselves have infused trillions into the US economy, and shortages of goods and services caused by virus-related restrictions and lockdowns has increased levels of inflation.
Investors also have worried, for example, about announcements that were made by companies like Toyota and VW; months ago, those companies announced that because of shortages of particular types of material, they would be reducing levels of production.
Months ago, the results of a survey of UK manufacturers were released.
That survey indicated that many businesses in the UK were concerned about shortages of supplies.
In general, jobs and businesses have been lost by way of mandates, restrictions and quarantines, which, in their turn, were imposed by way of the virus narrative.
In the US, overall, the mortality rate of the virus is about .069%, according to Statista, an award-winning service.
The recovery rate is over 99% for most age groups.
What has followed in the wake of lockdowns and mandates has been the infusion of trillions of dollars into the US economy, the increasing succeess of online businesses like Amazon and other large online retailers, various bank and tech-related stocks, the shuttering of small to medium-sized businesses and the loss of millions of jobs.
Another result has been the increasing levels of inflation, especially those of food and fuel.
In official terms, for purposes of reporting, the US Labor Department uses what is called “core inflation”.
Core inflation excludes items like food and fuel, as those are deemed too volatile.