Global central banks have been in a state of conundrum with respect to growth and inflation trade off. On one hand we have seen inflation at historic highs across most of the economies and on the other side, economic growth has been decelerating and some of the economies may be in a state of recession.
Two key mandates for central banks like US FED are price stability and unemployment. We believe that growth slowdown should tend to increase unemployment rates and as per the “Phillips curve”, due to inverse relationship between unemployment and inflation, higher unemployment rates would mean that cost pressures should come down. Policy making in such scenarios would be less restrictive as the focus would probably lie towards supporting growth.
Looking at the way things currently stand in US, job openings are almost twice the no. of unemployed and inflation is at historic highs....
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