It has been cautioned by an adviser to Jeremy Hunt that central banks may potentially induce a recession in Western economies as a strategic measure to secure victory in the battle against inflation.
Karen Ward, a distinguished member of the chancellor’s esteemed economic advisory council, expressed her firm opposition to the notion of a “soft landing.” She emphasized that policymakers would only consider adjusting their stringent approach if clear indications of economic weakness were present.
Ward: Don’t Underestimate the Likelihood of a Recession
According to Ward’s statement on Bloomberg TV, it is apparent that the probability of a recession remains considerable. The proposed course of action is expected to mitigate the issue of inflation effectively.
Ward serves as a strategist at JP Morgan Asset Management and is additionally recognized as one of the esteemed economic experts whom Hunt regularly consults for impartial guidance.
The economies of the United States, the eurozone, and the United Kingdom have exhibited stronger-than-expected performance during the initial half of 2023. However, it is essential to note that the positive developments are not expected to persist, as indicated by Ward.
According to Ward’s statement to Bloomberg, the recent communication conveyed by central bankers at the gathering in Jackson Hole, Wyoming, emphasized the necessity for borrowing costs to remain elevated for an extended duration, surpassing the expectations of financial markets.
The individual’s statements were made in response to the most recent statistical information from Germany, which indicates that the annual rate of wage growth during the second quarter of 2023 reached 6.6%. This represents an increase from the previous quarter’s rate of 5.6% and is the highest recorded figure since the commencement of contemporary data collection in 2008.
According to Ward, there was a prevailing belief in the markets that resilient growth could be achieved in the Western economies. At the same time, inflationary pressures would naturally dissipate, allowing central banks to transition from a tightening to an easing monetary policy stance. Regrettably, the weakness above will be necessary.
The statements made by Jerome Powell, the esteemed chairman of the US Federal Reserve, Christine Lagarde, the highly regarded president of the European Central Bank, and Ben Broadbent, a distinguished deputy governor of the Bank of England, during the Jackson Hole event collectively conveyed the notion that it is premature to ascertain whether interest rates have reached their zenith definitively.
The Problems Will Remain for Days to Come
According to Broadbent, the consequential ramifications of the substantial price increase, such as the resultant strain on employers to raise wages, are improbable to dissipate as swiftly as they materialize.
According to the speaker, monetary policy will likely need to continue operating within restrictive parameters for an extended duration.
In her assessment of the Jackson Hole conference, Ward expressed her perspective: “The collective sentiment conveyed by the participants, albeit through diverse means, indicated a lack of confidence in completing the task at hand. Furthermore, there was a prevailing uncertainty regarding our ability to progress towards the desired inflation target of 2% consistently.”
Only when there is unequivocal evidence indicating a discernible relaxation in labor market dynamics and a commensurate alleviation of wage pressures will it be feasible to ascertain a return to the 2% benchmark? This situation ultimately places us within an extended period of elevated circumstances.