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Central bankers warn that the era of low inflation and easy money is over

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Central bankers warn that the era of low inflation and easy money is over as they battle rising prices

The world’s leading central bankers warned that the era of low inflation and easy money was over as they stepped up the fight against rising prices.

When official figures showed inflation in Spain at a 37-year high of 10.2 percent, US Federal Reserve chairman Jerome Powell, Bank of England governor Andrew Bailey and European Union president Central Bank (ECB) Christine Lagarde hinted that more aggressive rate hikes may be needed even as the global economy slows.

Bailey, who has been accused of being too cautious in his approach to rate hikes with UK inflation heading towards 11 per cent, said the Bank has “the option” to act more vigorously.

Inflation threat: Bank of England governor Andrew Bailey – accused of being too cautious about his approach to rate hikes – said the Bank has ‘the option’ to act more forcefully

The Bank has raised interest rates five times since December, from 0.1 percent to 1.25 percent, but never by more than 0.25 percentage point.

By contrast, the Federal Reserve has raised interest rates three times since March, by 0.25 percentage point, 0.5 percentage point and 0.75 percentage point.

Bailey, along with Powell and Lagarde in Portugal yesterday, said: “There will be circumstances where we have to do more.

‘We are not there yet for the next meeting. We’re still a month away, but that’s on the table.’ Powell warned that curbing high inflation will be painful and hurt economic output and jobs.

“The process will most likely involve some pain, but the worst pain would be if you don’t deal with this high inflation and let it continue,” he said.

He reiterated his hopes that the Federal Reserve can raise interest rates enough to tackle inflation without triggering a recession – a so-called ‘soft landing’.

But he added: ‘Is there a risk that we go too far? There is certainly a risk, but I do not agree that this is the biggest risk to the economy.

“The bigger mistake we would have to make, let’s put it this way, would be not to restore price stability.”

Lagarde said the low inflation of the pre-pandemic era will not return as the ECB prepares for its first rate hike since 2011 – expected next month. “I don’t think we will go back to that low inflation environment,” she said.

Referring to the impact of Covid and the Russian invasion of Ukraine, she added: “There are forces that have been unleashed as a result of the pandemic, as a result of this massive geopolitical shock that we are now facing, which is affecting the image and landscape. in which we operate.’

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