Skip to main content

Tightening risks recession but inaction would be worse

The war in Ukraine has worsened the dilemma for the world’s major central banks: on the one hand it will push inflation even higher, but on the other it has raised the downside risks to real activity. They seem more concerned about the inflation threat and are poised to tighten policy regardless – in some cases even more aggressively than previously seemed likely. This decision seems warranted. After all, one lesson from the late 70s and early 80s was that delayed action could lead inflation to become entrenched, necessitating more aggressive tightening and economic hardship further down the line. But soft landings are notoriously difficult to achieve, and recession risks have increased.

Become a client to read more

This is premium content that requires an active Capital Economics subscription to view.

Already have an account?

You may already have access to this premium content as part of a paid subscription.

Sign in to read the content in full or get details of how you can access it

Register for free

Sign up for a free account to gain:

  • Unlock additional content
  • Register for Capital Economics events
  • Receive email updates and economist-curated newsletters
  • Request a free trial of our services

Get access