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From inflation spontaneously below 2% to inflation spontaneously above 2%
Since the subprime crisis, inflation (in the United States, the euro zone, the United Kingdom) had been spontaneously below 2%, even in periods of full employment. This allowed monetary policy to remain continuously expansionary throughout the economic cycle. But today, due to the appearance of scarcities (energy, raw materials, labour, transport, etc.), inflation will return to being spontaneously higher than 2% (as was the case before the subprime crisis, and even more so in the 1980s and 1990s). Central banks will therefore have to keep inflation below 2%, that is move to a restrictive monetary policy as soon as the unemployment rate nears the structural unemployment rate . I n other words, they will have to conduct a highly countercyclical monetary policy. There will therefore be return to cycles of the past, with recessions resulting from the monetary policy response to inflation.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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