Is the New Stagflation Policy-Proof?
— March 30, 2022
By Nouriel Roubini
Putting aside the war’s profound long-term geopolitical ramifications, the immediate economic impact has come in the form of higher energy, food, and industrial metal prices. This, together with additional disruptions to global supply chains, has exacerbated the stagflationary conditions that emerged during the pandemic.
A stagflationary negative supply shock poses a dilemma for central bankers. Because they care about anchoring inflation expectations, they need to normalize monetary policy quickly, even though that will lead to a further slowdown and possibly a recession. But because they also care about growth, they need to proceed slowly with policy normalization, even though that risks de-anchoring inflation expectations and triggering a wage-price spiral.
Read the full Project Syndicate article.
Nouriel Roubini is a Professor Emeritus of Economics and International Business and the Robert Stansky Research Faculty Fellow.