David Dodge speaks with the Financial Post about the Bennett Jones Spring 2022 Economic Outlook. He points to the difficult mix of economic challenges that policymakers are facing—from the Russian invasion of Ukraine, to supply chain breakdowns to rampant inflation—and why they’re going to need a few things to break their way to manage through it with as little pain as possible.
David says that in order to avoid a stagflation environment, policymakers will have to work quickly from both a monetary and fiscal policy standpoint to bring prices under control.
“We have to move really quickly to (bring inflation down), and … for central banks, that means getting interest rates up to a level where they actually are restrictive rather than just being accommodative for growth. And at the same time, we have to allow the rise in prices to do their job, which will be to cut demand where people don’t have enough income—that reduces demand and perhaps some prices. That’s not very nice, but that’s the way the market system works.”
The Bennett Jones Economic Outlook presents an optimistic scenario for business planning, where central banks are able to guide the economy to a soft landing, so that Canadian and U.S. growth is uninterrupted and that by 2024, inflation is back at target.
Under the Outlook's pessimistic scenario (by no means a worst case), there is greater up-front turbulence and more intense and persistent price pressures, the Federal Reserve takes stronger action and the U.S. economy goes into a mild recession in the first half of 2023.
