The Jackson Hole conclave, the US Federal Reserve’s flagship annual event, concluded over the weekend where heads of central banks discussed the long-term ramifications and economic upheaval caused by the coronavirus pandemic.
The primary theme was deploying new tools and dovish policies to avoid long-term economic damage in the aftermath of the coronavirus that continues to spread unabated.
"We are not going back to the same world," warned Tharman Shanmugaratnam, head of Singapore’s monetary authority, exclaiming that high level of unemployment was the biggest threat to the global economy.
"We’ve got to avoid a prolonged period of high levels of unemployment and it’s a very real prospect. It is not at all assured that we will get a return of tight labour markets even with traditional macroeconomic policy being properly applied."
A Columbia University paper presented at the event compared the pandemic to a financial crisis, one which will change the behaviour of consumers and businesses for years to come.
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Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.
Another paper from Stanford University termed the pandemic as
"a major impediment to a rapid recovery".
Against this sombre backdrop, central bankers from around the world laid forward their strategies to deal with the economic fallout.
US Fed chair Jerome Powell said a more lenient approach to inflation must be adopted and policymakers should focus on achieving the tightest possible labour markets.
“The economic question we had to answer was how to adapt our framework to what we really had learned since the global financial crisis, during that long expansion," Powell said.
The members of the European Central Bank said they could take Fed's lead in relaxing its average inflation targeting but hinted at possible opposition from more hawkish members of the council such as the German Federal Bank.
"I think we will look at it," said one ECB council member. "But the idea of a substantial overshooting on inflation leads to a worry that the governing council would not have the moral fibre to adjust interest rates enough to correct it — so yes, the Bundesbank will be nervous about the idea."