“That has changed, and will probably change continuously towards a system that we are not certain about,” Lagarde said.
Powell offered a warning that while he considers it possible to hike rates without triggering a recession, it “will be quite challenging.” The ECB -- which is on track to raise twice in the next quarter -- must be ready to step up action if needed, while moving gradually to account for high uncertainty, Lagarde said.
The US central bank chief cautioned that it may be too early to judge if high inflation is a more permanent feature of the global economy, observing that economists’ models had failed to anticipate a huge supply shock.
“That process could work in reverse,” he said. “Inflation could come down more quickly.”
In the meantime, the central bankers must adjust to the new reality.
“We’ve lived in that world where inflation was not a problem,” Powell said. “I think we understand better how little we understand about inflation.”
-With assistance from Steve Matthews, Jana Randow, Alexander Weber, Catarina Saraiva and Andrew Langley.
This article was provided by Bloomberg News.