Could we be moving from acute labor shortages to a resurgence in unemployment because of central banks’ aggressive fight against inflation? That’s what Quebecer Jean Boivin, who heads the economic research department of BlackRock, the world’s largest wealth manager, fears.
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“One has to ask the question: wouldn’t it be better to bring inflation down more slowly to limit the costs this could mean for those who will be hit by a higher unemployment rate?” Mr Boivin said during a phone interview this week with LeJournal.
The economist and his team believe that in the United States, the rapid rise in interest rates could trigger a recession that could put three million more workers out of work. Worse, high inflation could persist despite a slowdown in economic activity.
“It dreams in color, hoping for a soft landing [de l’économie]’ dropped Jean Boivin.
BlackRock has not attempted to quantify the impact of monetary tightening on employment in Canada, but evidence suggests it would be in the same range as south of the border.
“The story is the same everywhere: it is an inflation of a different nature [de celle de la fin des années 1970], and to really mitigate it, the cost will be higher everywhere. I don’t have specific numbers for Canada, however [combattre l’inflation] will require a higher increase in the unemployment rate than we could have expected in the past,” explained Mr Boivin.
An unusual absence of debate
According to this former deputy governor of the Bank of Canada, central banks are not transparent enough about the potential economic consequences of their decision to fight inflation at all costs.
“Nobody says ‘here’s the cost we have to be willing to incur and that’s why the game is worth the candle,'” he noted. All we hear is that we need to reduce inflation. And this is where the debate fails. It’s surprising. Normally in central banks there are always people on one side and people on the other side. There are intense debates leading to a result. No one is currently taking the position: be careful, isn’t there a risk of overdoing it? It’s totally abnormal.”
Unlike during the crisis of the 1970s, when inflation hovered around 15% in the United States, the population has not yet “unanchored” its expectations of price increases, argued Jean Boivin. In other words, people are confident, at least for now, that inflation will be brought under control within a reasonable timeframe.
However, the specialist acknowledged that the current economic environment is “the most difficult” we have faced in half a century.
“At this point in time there is no really desirable result. What matters is coming to the least-worst result,” he wrote with his BlackRock colleagues in a release released earlier this week.
Run away from the stock market
While waiting for markets to fully appreciate the high risk of a global recession, the powerful American firm is advising investors to “avoid most stocks on the stock market.”
That doesn’t stop Mr. Boivin from remaining optimistic about small savers’ investments and our retirement plans.
“It’s going to be a different environment than what we’ve seen in recent years, which means not everything will be fine, but for those who have a longer-term horizon, it will eventually stabilize,” he said .
Jean Boivin has been with BlackRock since 2014 and is currently based in New York after spending a number of years in London.
“I feel very blessed to be able to play this role,” he said. I really enjoy it.”
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