Commentary
European Central Bank (ECB) President Christine Lagarde seems even less aware than Federal Reserve (Fed) Chairman Jerome Powell. Both face pressure to deal with intense inflations—8.3 percent in the last year in the United States and 7.5 percent in the eurozone.
But since the necessary response risks recession, Powell has moved timidly, and Lagarde has not moved at all. Their lack of conviction will likely cause both inflation and recession.
The Fed has only just edged onto an anti-inflationary heading. Policymakers there have begun to reverse their so-called “quantitative easing” program. Instead of buying securities directly on financial markets, they will now sell the hoard of securities they previously amassed. They hope in this way to absorb inflationary liquidity from the economy. Fed policymakers have also made small steps toward raising interest rates, adding 0.75 percentage points to the target federal funds rate to bring it to 1.0 percent….