BISness Stability amid uncertainty
Jun 29, 2025
The discussion highlights the global economic uncertainty impacting inflation and consumer behavior. Trade disruptions and policy changes are influencing investment and central bank roles. Critical vulnerabilities, like productivity stagnation and public debt, are explored, alongside strategic fiscal measures needed for growth. The transformation of financial risks since the Great Financial Crisis is examined, focusing on non-bank intermediaries and systemic threats. Lastly, the importance of central bank independence in challenging times is emphasized to ensure effective public policy and build societal trust.
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Tariffs Fuel Economic Uncertainty
- Trade tariffs have varying effects: they act as supply shocks in imposing countries and demand shocks in others.
- The uncertainty surrounding tariff outcomes causes firms to delay investment and households to limit spending, harming growth.
Inflation Expectations Are Less Anchored
- Households now perceive inflation as higher than it is due to recent inflation experience.
- Inflation expectations are more sensitive, increasing risks of inflation becoming entrenched.
Low Productivity Curtails Economic Flexibility
- Productivity growth has been subdued, limiting economic flexibility to respond to shocks.
- This reduces central banks' leeway in managing inflation and calls for policies tackling real rigidities.