US and Europe could escape recession, says Fed official

An official from the US Federal Reserve said on Tuesday that the US and the European Union can escape recession while bringing inflation to an acceptable level, saying an “easy landing” is achievable in these two economies.

“A smooth landing is possible in the United States and the European Union,” James Bullard, President of the Federal Reserve Bank of St. Louis, said during a speech at New York University.

This requires that the change in monetary policy be done “correctly”, i.e. moving from accommodative policy during the pandemic to one that is firmer in the face of inflation.

He pointed out that the main element in this is inflation expectations.

In fact, 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 further, employees will demand higher wages, and so on.

Current inflation in the United States and the eurozone is close to levels [à deux chiffres] 1970s,” James Pollard emphasized.

Fighting inflation was, at the time, “expensive” for the US economy, with several recessions, but this was due, according to the official, to the fact that it was “not credible at first” because “few people trusted the Federal Reserve to cut inflation yet” Letting it rise for a decade.”

Therefore, then-Fed Chairman Paul Volcker had to “gain credibility” by striking hard.

But the Federal Reserve and the European Central Bank [Banque centrale européenne] They are very credible compared to their counterparts in the 1970s,” commented the St. Louis Fed President.

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“Inflation was stronger in the second quarter than I expected”; So, “we’re going to have to go a little higher” than expected, he said, CNBC reported.

Key federal interest rates, which set the tone for US commercial banks currently at between 2.25 and 2.50%, should be raised to 3.75%-4% by the end of 2022, James Bullard predicted.

Inflation in the United States reached 9.1% in one year in June, a record high since 1981. Also in the Eurozone, it was pushed to a new record high in July, at 8.9% in one year.

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