Central banks underestimated inflation: P. Krugman

The world’s central banks, such as the United States Federal Reserve (Fed), underestimated inflation at first, forcing them to react with sharp increases in benchmark interest rates, said Paul Krugman, Nobel Prize Winner in Economics. , at the Amafore 2022 Meeting.

“The Federal Reserve (Fed) did not anticipate so much inflation, they made the same mistake that I did. The answer is that the majority of the expenses (of the people) did not seem to lead to an increase in inflation in the short term, ”said the Nobel Prize in Economics.

In this sense, for the economist it is a fact that central banks around the world are “embarrassed” for having underestimated inflation in its early stages and that it is now at maximum levels of several decades, which has been a great impact. , not only for the population, but also for the institutions in charge of monetary policy.

“Controlling inflation is the number one job of central banks and to feel that they have not managed to do it well they are embarrassed. So we have seen monetary tightening from both the Federal Reserve and the European Central Bank,” he maintained.

Regarding the economic situation in the United States, he commented that despite everything, the latest news has been positive, so it will have a “calm landing in 2023”, with a low probability of entering a recession.

“We will have a good landing and a low probability of reaching a recession. The definition we use in the United States has to do with adjusting (…) If the unemployment rate rises half a point, it seems to me that we probably have something that can be classified as a recession, but there are recessions to recessions, if it rises 0.4% it will be a recession, but it won’t feel like a recession,” said the also a professor at the City University of New York.

Banxico is not obliged to follow the Fed

During his presentation, Krugman spoke about Banco de México’s monetary policy, explaining that it would be convenient for it to follow the Fed, although it should not be obliged to do so.

Mexico should not commit to following the lines of the Federal Reserve. It is very different compared to the United States, it may have idiosyncratic needs that may require very different monetary policies. Now it makes sense, but if we have a crisis in Mexico you have to have possibilities, ”he said.

valores@eleconomista.mx