Central Banks Brace for Challenges in Navigating New Global Economic Landscape: Catherine Mann of Bank of England Warns on Inflation, Trade Fragmentation and Volatility.

Catherine Mann, a Bank of England policymaker, has raised concerns about the fragmenting global economy and its potential impact on inflation shocks in the future. Speaking at the International Monetary Fund, Mann emphasized the end of the “great moderation,” a period characterized by stable inflation and low volatility. She argued that central banks will need to be more active in exercising their independence to navigate the new economic landscape.

Mann pointed out that global integration is a key factor contributing to the stable inflation of the past. However, with ongoing fragmentation of trade and capital flows, both emerging market and advanced economies are facing challenges. This shift is likely to result in lower potential growth rates for economies, creating inflationary pressures that central banks will need to address.

The changing global economy is also leading to a decrease in trade and finance, with countries experiencing disengagement rather than reformation into distinct economic blocs. Mann highlighted the potential risks and consequences of this trend, emphasizing the volatility and uncertainties it brings. She expressed concerns about moving towards more localized supply chains, highlighting the significant trade-offs involved.

Overall, Mann’s remarks underscore the complexities and challenges that central banks will face in navigating the evolving global economic landscape. Central banks will need to maintain high levels of vigilance, manage increasing inflation volatility, and adapt to changing dynamics to ensure stability and growth.