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The Bank of Canada's key interest rate rose to 1.5% in July .
The United States and the European Union can escape recession while bringing inflation down to an acceptable level, an official of the American Central Bank (Fed) said on Tuesday, saying that a “soft landing” is achievable in both economies.
Soft landing is possible in the United States and European Union, Fed Chairman says of Saint Louis, James Bullard, during a speech at New York University.
This requires that the change in monetary policy be properly executed, i.e. the change from an accommodative policy during the pandemic to a policy firmer against inflation.
A key element for this, he pointed out, is inflation expectations.
Indeed, if markets and consumers expect prices to remain on their upward trajectory, they will act accordingly. Stores will continue to raise prices, consumers will rush to buy before prices go up again, workers will demand higher wages, etc.
Current inflation in the United States and the euro zone is close to the (double-digit) levels of the 1970s, said James Bullard.
The fight against inflation, at the time, cost the American economy dearly, with several periods of recession. This is due, the official says, to the fact that it was not initially credible, as few trusted the Fed to bring inflation down after letting it rise for a decade. .
Therefore, then-Fed Chairman Paul Volcker had to gain credibility by hitting hard.
The Fed and the BCE have considerable credibility compared to their counterparts of the 1970s, added the president of the Fed of Saint Louis.
Inflation was stronger in the second quarter than I expected, therefore we are going to have to go a little higher than expected, a- he also said, CNBC reported.
The key Fed rates, which set the tone for commercial banks in the United States and which are between 2.25 and 2.50%, will have to be raised up to 27 ;to 3.75%-4% by the end of the year, thus anticipated James Bullard.
Inflation has reached the States United States 9.1% year on year in June, a record since 1981. In the euro zone too, it was propelled to a new record in July, at 8.9% year on year.