Economist Writing Every Day

Christine Lagarde, President of the European Central Bank, gave a speech called “Policymaking in an age of shifts and breaks” at Jackson Hole in August 2023.

She mentioned multiple factors that make the near future hard to predict, from the effect of A.I. on jobs to the war in Ukraine.

In the pre-pandemic world, we typically thought of the economy as advancing along a steadily expanding path of potential output, with fluctuations mainly being driven by swings in private demand. But this may no longer be an appropriate model.

For a start, we are likely to experience more shocks emanating from the supply side itself.

A line I found interesting, because of my paper on sticky wages:

Large-scale reallocations can also lead to rising prices in growing sectors that cannot be fully offset by falling prices in shrinking ones, owing to downwardly sticky nominal wages. So the task of central banks will be to keep inflation expectations firmly anchored at our target while these relative price changes play out.

And this challenge could become more complex in the future because of two changes in price- and wage-setting behaviour that we have been seeing since the pandemic.

First, faced with major demand-supply imbalances, firms have adjusted their pricing strategies. In the recent decades of low inflation, firms that faced relative price increases often feared to raise prices and lose market share. But this changed during the pandemic as firms faced large, common shocks, which acted as an implicit coordination mechanism vis-à-vis their competitors.

Under such conditions, we saw that firms are not only more likely to adjust prices, but also to do so substantially. That is an important reason why, in some sectors, the frequency of price changes has almost doubled in the euro area in the last two years compared with the period before 2022.

Once Covid changed our lives so much, then things kept changing. Firms are raising prices because consumers got used to change.

At this Jackson Hole meeting, both J. Powell, the chair of the Federal Reserve, and Lagarde indicated that they are trying to get inflation under control and back to the 2% target. If you want to get this information via podcast, listen to “Joe Gagnon on Inflation Progress and the Path Ahead: Breaking Down Jerome Powell’s Jackson Hole Speech“

After reading her interesting speech, I had to know more about C. Lagarde. On Wikipedia, I discovered:

After her baccalauréat in 1973, she went on an American Field Service scholarship to the Holton-Arms School in Bethesda, Maryland.[18][19] During her year in the United States, Lagarde worked as an intern at the U.S. Capitol as Representative William Cohen’s congressional assistant, helping him correspond with French-speaking constituents from his northern Maine district during the Watergate hearings.

Since my post about “awards for young talent” was found and shared on Twitter, I have continued thinking about it. According to Wiki, C. Lagarde has received several prestigious awards. Her progression through the “Most Powerful Woman in the World” ranking is something.

Imagine being that close to the top back in 2015 and getting beat out by American Melinda Gates.  But today, Lagarde is winning over both Melinda French Gates and Kamala Harris. Will an economist climb to #1? Lagarde is currently sitting at #2 when I checked the Forbes website.