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Higher inflation is more of a risk to the global economy in coming years than many believe, said Laurence Boone, the chief economist of the OECD, on Friday.
“I think inflation is a little bit more of a risk over the medium term,” Boone said during a talk at the Jackson Hole economic symposium.
One key reason inflation may return is that investors believe central banks want to keep interest rates low primarily so government borrowing costs low.
Threats to the independence of central banks are mounting, she added.
Another factor that could boost inflation is a retreat of globalization, under assault from populist governments.
Boone said monetary and fiscal policy has been powerful to stabilize the global economy and “it will be needed for longer.” There cannot be another pullback of government spending like the one that hampered European growth soon after the global financial crisis, she added.
Many economists see the coronavirus as deflationary.
The Fed’s favorite measure of inflation, the personal consumption expenditure price index, has risen only 1% over the past year ending in July.
On Thursday, the Fed announced has adopted a policy that suggests they will not be in a hurry to raise interest rates at the first sign of higher prices.
Read:Fed adopts new strategy to welcome higher inflation and hot labor markets
Earlier Friday, the head of the Bank of England said that quantitative easing works best when done “big and fast.”
Stocks are higher on Friday on the prospect of easier central bank policy ahead. The S&P 500 index SPX, +0.39% was up 12 points in late morning trading.
