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What happened in the past when central banks raised interest rates to drive down inflation?
Many investors, business leaders and economists are now worried about the economic consequences of monetary policies aimed at bringing US and euro-zone inflation back to 2%. There are fears that these policies will lead to recessions, with a sharp fall in GDP and a marked rise in unemployment. But what happened in the past when central banks conducted such a policy (late 1980s, late 1990s)? Admittedly, activity declined significantly as a result of the subprime crisis and the COVID crisis, but what happened in the past when it was simply a matter of correcting excessive inflation through a more restrictive monetary policy? In the past: Central banks hiked the key interest rate by 2 to 3 percentage points; There was a stagnation or a slight and brief decline in GDP, but not a recession; The unemployment rate rose by 1.5 to 3 percentage points. The re was certainly no economic collapse.
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Natixis
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Patrick Artus
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