The Federal Reserve is expected to tighten monetary policy soon and decisively to prevent what could become “quite persistent” inflation, World Bank chief economist Carmen Reinhart told Reuters in an interview.
Reinhart, who has been warning for some time that supply chain shocks could result in sustained inflation in the United States and elsewhere, said any delay by the Fed in raising rates would only prolong the problem.
“If inflation is really more persistent, my conclusion about the Fed’s monetary policy is … that if you do more now, you will do better than if you do too little too late,” Reinhart said ahead of the release of the Development Report. World Bank World.
Reinhart said the Fed has signaled a modest tightening by historical standards but could shift gears in light of recent data.
“I’m of the opinion that if the trend is to delay action and be more cautious, that’s basically just pushing the issue over the horizon,” he added.
Reinhart has been arguing for about a year that the rise in inflation is unlikely to be temporary because supply chain shocks have affected commodity prices, transportation costs and other sectors.
And rising tensions between Ukraine and Russia have exacerbated inflationary pressures that sent oil prices soaring 77% from December 2020 to last month.
“All of this is not temporary, and inflation proves that few things in life are permanent, but many things are quite persistent,” she said.
Federal Reserve officials remain divided on how aggressive they will be in raising rates at their March meeting.
In a paper published last week, Reinhart and World Bank economist Clemens von Luckner noted that a more timely and robust monetary policy response from major central banks would increase funding costs for emerging markets and developing economies, and could worsen existing debt crises.
But they said the long-term costs of delaying action would be great.
As the United States and other advanced economies failed to fight inflation quickly during the 1970s, they ended up needing much more draconian monetary policies, which triggered the second-biggest post-World War II US recession and a US debt crisis. developing countries, they wrote.
Source: CNN Brasil
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