In this chapter, the role of monetary policy in addressing
inflation and deflation from a sustainability perspective will be examined. The
effectiveness of traditional interest rate adjustments in the current economic
climate, influenced by geopolitical factors and speculation will be examined.
In this chapter, the historical context of monetary policy, particularly the
strategies employed by Volcker's FED in the 1980s, is examined and contrasted
with contemporary challenges. The findings suggest that while interest rate
hikes can curb speculation, they may not effectively control inflation driven
by international cost pressures. A re-evaluation of monetary strategies to
align with sustainable economic practices may be required.
A difficult moment for broader monetary policy, hit by the
accusation of having caused the looming global recession with the rise in
rates. But is it really like that? That is, would a more accommodative monetary
policy have saved the economy for everyone? Probably a poorly posed question,
because it is difficult to agree with those who want to blame the policies of
the main banks for an economy that is not actually getting worse. Meanwhile, it
should be emphasized that inflation due to international prices cannot be cured
by manipulating interest rates. Nonetheless, major central banks made (on
average) ten consecutive small jumps as inflation reared its head, resurrected
by rising international prices. How can we now explain the interest rate shock
to the real economy if the rates themselves have almost no effect on
international price-driven inflation? What is perhaps meant is that with the
proposed interest rate cut, we could avoid the reduction in prices due to the
announced recession? But this hypothesis also does not seem to hold because the
expected recession is not in sight and the stability of interest rates does not
harm the economy. However, if central banks around the world insist on this
unaccommodated tone, they must have their own reasons. Meanwhile, we can say
that there was and still is a good reason, but it is only partly linked to the
inflation of international prices. Indeed, the decision to repeatedly raise
interest rates, which hovered around zero, was sacrosanct. It ended cheap
credit, which in turn encouraged speculation in the prices of oil and rare
metals. The pace of rising rates as stock market pressure eases is obviously
less clear. The answer seems to be that central banks did not change their
model after the victory over inflation achieved by Volcker's FED, which raised
rates above the inflation rate in the early 1980s. With the exceptional result
of bringing inflation back under control and a record economic situation in the
USA. But those were different times and another standard of inflation, linked
to errors in the direction of the economy and not to the expected effects of
speculation as in today's context.
Author(s) Details
Giovanni Antonio
Cossiga
Collegio Sindaci Policlinico Umberto 1, Università Sapienza,
Rome, Italy.
Please see the link:- https://doi.org/10.9734/bpi/crbme/v9/960
