In the recently published Geneva Report, economists Guerrieri, Marcussen, Reichlin, and Tenreyro have recommended a halt on further interest rate increases by policymakers in both the United States and Euro-zone. This advice comes amidst concerns of disinflation and a decrease in pandemic-era household savings.
The authors of the report emphasize the importance of patience in monetary policy adjustments. They argue that the potential benefits of further tightening are outweighed by the associated risks, particularly in the Euro area.
This call for a pause is rooted in allowing previous rate hikes to fully manifest their effects, given the typically delayed impacts of monetary policy. The economists’ recommendation aligns with the Federal Reserve’s stance of maintaining higher rates for an extended period.
The Geneva Report’s guidance comes at a time when economies worldwide are grappling with the aftermath of the COVID-19 pandemic and its impact on financial stability. The authors’ cautionary approach towards further interest rate hikes suggests a focus on ensuring economic recovery and stability over immediate monetary tightening.
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