The return of “monetary cycles”

The period f rom the 1970s to the 2000s was punctuated by “monetary cycles”: in the second half of expansion periods, inflation threatened to rise above the central bank’s inflation target, so the central bank moved to a restrictive monetary policy that led to a recession and eliminated the inflation. Monetary policy could then become expansionary again and a new growth period could begin. Recessions of the past (1980, 1990, 2000, 2008) stemmed from this monetary cycle and therefore from central banks’ desire to periodically stamp out inflation. From 2010 to 2019, this monetary cycle disappeared, as inflation remained below central banks’ inflation targets even when the unemployment rate was very low. Now the monetary cycle is returning : various scarcities lift inflation well above 2% (we look at the United States and the euro zone) when the economy approaches full employment. We will therefore see the return of recessions deliberately caused by central banks to drive down inflation.