No one can deny that current financial conditions are highly favorable for economic growth worldwide. The data have been very positive this year, when we were all much more cautious at the end of last year. Perhaps the high supply of liquidity also explains the buoyancy in international financial markets. The expansionary phases of the economic and credit cycles now go hand in hand. A mutually beneficial relationship that extends over time.
The current scenario seems so idyllic that discussing the need to advance in correcting imbalances and normalizing economic policy appears out of place. But it is precisely during economic expansion when these adjustments must be made. It is a fact that cycles exist, despite the expansionary phase of the current one being surprising in its duration and intensity. Incidentally, let us recall how the upward phase of the previous cycle lasted more than a decade in a context of strong monetary expansion. Then came the crisis, accentuated by the accumulation of excesses from the past.
Why is it important to begin monetary normalization now? Inflation does not appear to be a short-term problem, with downward pressures stemming from the recent drop in crude oil prices and the apparent breakdown of the Phillips Curve. Central banks focus the design of their monetary policy on the evolution of inflation expectations, which are now moderating. The risk of inflation appears contained, under a scenario of accelerating economic growth. Who remembers the theory of secular stagnation now? Perhaps the central banks themselves, as reflected in their hesitation to eliminate part of the excess liquidity. In principle, they have time to do so, given the absence of potential price excesses in financial markets. Of course, having time does not mean postponing the decision indefinitely. In fact, it would be desirable to establish a strategy that withdraws monetary stimulus in an orderly manner.
