Central banks: "The next recession will come sooner than expected"

Mr Fels, inflation is higher than it has been in decades.

This worries many people.

They also?

Dennis Kremer

Editor in the "Money & More" section of the Frankfurter Allgemeine Sonntagszeitung.

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I think it would be wrong to worry too much about it now.

Yes, inflation rates are high and at first glance, many people are terrified.

I can understand that very well.

But there are also special factors at work: the rise in energy prices, the disruption of supply chains and a pandemic-related high demand for goods.

In the United States, checks were even given to consumers for a while, adding to demand.

But I don't expect inflation to stay high for the long term.

How can you be so sure about that?

There can be no complete security in this field, as this year in particular has made us humble.

All forecasters, including the major staff of the central banks, misjudged inflation.

That's why I can understand the distrust of some skeptics.

But there is a lot of evidence to suggest falling inflation rates.

First, the oil price has tended to fall since the end of October.

Second, there is an easing of tension in the supply chains, and thirdly, fiscal policy is also less expansionary.

For example, consumer checks no longer exist in America.

But people might think of asking for higher wages because of higher inflation.

Yes, that cannot be ruled out. The higher the current rate of inflation, the greater the possibility that inflation expectations will rise and that people will demand higher wages. But especially in Germany we see rather moderate wage agreements that apply over longer periods of time. And even if salaries should rise more strongly, I consider the risk of a self-reinforcing wage-price spiral to be low. Which has to do with a pleasant topic: Many companies from all over the world are making very good profits again, so they have a certain buffer to absorb wage increases. And higher salaries can also act like a productivity whip for companies, which means that they then make an effort to work more efficiently.

Next week, the European Central Bank (ECB) will have a much-anticipated meeting.

If you follow them, the central bankers won't have to change anything.

It is really not so.

The general expectation is that the ECB will let the emergency program PEPP expire in March, with which the central bank can flexibly buy bonds.

At Pimco, this is also the most likely outcome.

However, the central bank will leave a back door open to continue the program under certain conditions.

That would be the case, for example, if the new virus variant called Omikron proves to be even more devastating.

The ECB has to be patient.

It doesn't make sense to commit to the exit and then have to revise yourself in a month or two.

From the point of view of many central bankers, having to revise seems to be the worst that can happen. Why actually?

Of course, one could say with the economist John Maynard Keynes:

- when

. At the same time, however, central banks should not become the source of price fluctuations on the financial markets themselves. If they give the wrong signals, it creates unnecessary uncertainty. Just look at the Bank of England. Representatives of the UK central bank had indicated that interest rates could rise as early as November. When the expected increase did not materialize, it led to fluctuations in the exchange rate of the British pound and spikes in the bond markets. This shows that it is important for central banks to be predictable and predictable.

Then tell us what the US Federal Reserve will do, which is also having its meeting next week.