Powell Says Economic Growth Will Likely Slow as De-Globalization Pressures Build

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Federal Reserve Chair Jerome Powell said he thinks it’s rather “likely” that the forces of de-globalization will mount, leading to a more fractionalized new normal characterized by higher inflationary pressures, lower productivity, and slower economic growth.

Powell made the remarks on June 29, during a panel discussion at the European Central Bank’s annual policy forum in Sintra, Portugal.

“We’ve lived through a period of disinflationary forces around the world—this is globalization, aging demographics, low productivity, technology enabling all of that,” Powell said, describing it as a world where inflation was generally “not a problem” in most advanced economies.

“Since the pandemic, we’ve been living in a world where the economy is being driven by very different forces, we know that,” he continued, noting that what remains unknown is whether things will go back to a prior disinflationary environment and, if so, to what extent.

“We suspect that it will be kind of a blend,” the Fed chief said.

“In the meantime, we’ve had a series of supply shocks, we’ve had very high inflation across the world, certainly through all the advanced economies, and … we’re learning to deal with it,” he said, with his remarks coming as central banks around the world have, in general, been caught flat-footed by persistently high inflation and have rushed to tighten loose monetary settings to bring down soaring prices.

‘Certainly a Possible Outcome’

Powell said the Fed’s job of achieving price stability and maximum employment in this new normal with new forces at work has been a “very different exercise” than the U.S. central bank has undertaken over the past 25 years while suggesting that slower economic growth would be an inevitable tradeoff in fighting inflation.

“If what we see, for example, is a re-division of the world into competing geopolitical and economic camps, in a reversal of globalization, that certainly sounds like lower productivity and lower growth,” he said.

“That’s certainly a possible outcome and I think probably, to some extent, a likely outcome,” Powell said.

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