(Credit: IMF Photo/Lewis Joly) Central banks’ credibility has paved the way for a soft landing of the global economy, allowing it to exit the high inflation period without falling into recession. That was the main takeaway of “Monetary Policy is a Shock-Prone World,” panel on Friday. “It was not a foregone conclusion”, said IMF First Deputy Managing Director Gita Gopinath about the win over inflation. “It is to the credit of central bankers, they have kept inflation expectations at the long run anchored and that helped bring inflation down without a big hit to activity.” Looking ahead, Gopinath sees different kinds of risks to inflation's downward trajectory. One is the expectation that fiscal deficits will be smaller both in the United States and in the Euro Area. The second is “what comes from geopolitics,” for example an increase in oil prices, or “what comes from a big round of tariff increases, which has inflation pressures.” François Villeroy de Galhau, governor of the French Central bank and Chair of the Board of Directors of the Bank for International Settlements, sees three main elements underscoring central banks’ credibility that allowed them to deliver lower inflation without recession: 1) central banks’ independence; 2) inflation targeting, “because the 2% objective [of the European Central Bank] is very simple and understandable by all economic agents; and 3) an existing positive record of action and communication. “Past credibility fostered present credibility.” Professor Ricardo Reis, from the London School of Economics, believes that inflation will be structurally higher going forward. “The world has changed since 2019 in a way that in my view leads to higher interest rates moving forward,” he said mentioning demographic trends, an increase in public investment, the fact that government debt overall has become less safe over recent decades; and the end of the “savings glut,” referred by many economists, as China and other Asian countries have much lower current account surpluses. Governor Rosanna Costa, from the Central Bank of Chile, pointed out to the new forms of stress that geopolitical conditions are introducing to financial markets, moving up long-term interest rates. “Long-term rates are becoming more sensitive” to short-term developments. She mentioned the IMF’s Fiscal Monitor research about how the level of debt in advanced economies is related to this new reaction of long-term yields. Moderator Julia Chatterley from CNN asked whether the world is in a stronger position today to deal with inflation. Villeroy de Galhau: “We should never be complacent or lazy, but I think we are in a better position, but we live in a more volatile and dangerous world.” Rosanna Costa: “We need to be prepared for volatility, we need to build resilience… we need to face the future with this very firm structure.” Ricardo Reis: “To the people that are still suffering with high prices, I would say that, by controlling inflation, we can now enter the stage where their wages and their income catch up to the loss of purchasing power they had in the last three years.” Gita Gopinath: “We are in a better place, we have better frameworks than we had in the past … Going forward we have to continue to learn, observe, adapt. This job is not done. But I have confidence that we are in the process of doing the best job possible.” “Confidence, humility and time will tell,” concluded Chatterley.  As the 2024 Annual Meetings come to a close, IMF Communications Director Julie Kozack will recap the key moments and developments from the week. To mark 80 years since the Bretton Woods Conference, IMF historian Rex Ghosh will offer a fascinating look into the Fund’s journey and future outlook. Don’t miss this reflective and forward-looking conclusion! | 
