If central banks increase interest rates enough to bring inflation down to 2%, they will cause a severe economic hard landing
And if they don’t – attempting instead to protect growth and jobs – they will be left increasingly far behind the curve, leading to a de-anchoring of inflation expectations and a wage-price spiral.
Project Syndicate: In your latest PS commentary, you reaffirmed your expectation that monetary authorities’ efforts to rein in inflation will “cause both an economic and a financial crash,” and that “regardless of their tough talk,” central banks “will feel immense pressure to reverse their tightening” once that crash materializes.
What would the impact of such a reversal be? Do monetary policymakers in the United States and Europe have any good – or less bad – options?
Nouriel Roubini: Central banks are in both a stagflation trap and a debt trap.
Raising interest rates enough to crush inflation causes not only an economic crash, but also a financial crash, with highly leveraged private and public debtors facing severe distress.
In these circumstances, central banks will blink.
Nouriel Roubini Project Syndicate 15 November 2022
Megathreats
The Ten Trends that Imperil Our Future, and How to Survive Them
Nouriel Roubini 2022-10-20
https://englundmacro.blogspot.com/2022/10/roubini-megathreats.html
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