Central banks adjust policies to prevent recession after controlling inflation.

The recent evolution of global monetary policy has made it clear that central banks, led by the Federal Reserve of the United States, are shifting their focus from combating inflation to preventing a potential recession. This change in direction, evidenced at the recent Jackson Hole symposium, marks a crucial moment in economic management, where the challenges are as complicated as ensuring a soft landing on the Moon, as demonstrated by recent space missions. Jerome Powell, the Fed chairman, has been at the forefront of this task for over two years. During this period, the primary objective has been to control inflation, which has begun to lose altitude recently. However, the current concern is that the economy may lose its momentum, leading the Fed to consider a reduction in interest rates at its next scheduled meeting on September 18. Powell's decision to indicate that "the time has come" to lower rates is a clear sign of a significant shift in monetary policy. The current economic situation is the result of a series of complex factors, including stimulus programs, savings accumulated during the pandemic, and supply chain issues, exacerbated by the war in Ukraine. These elements have led to a phase of inflation that, although initially thought to be transitory, has proven to be more persistent than expected. Despite this, the trend seems to be changing, and many central banks are beginning to align toward a more flexible monetary policy. The European Central Bank and the Bank of England are in sync with the Fed in this regard, also considering the possibility of reducing their interest rates. Despite some internal divergences, most members of these institutions have expressed that a rate cut is increasingly likely, given the context of disinflation and data pointing to moderate growth in Europe. Historical experience has also guided Powell in his current approach. Remembering the lessons of the past, where tolerance for inflation led to disastrous consequences, he has maintained a more cautious stance. Just a year ago, the Fed positioned itself as a hawk, but now the narrative is different. Concerns about employment have taken center stage, and Powell has indicated that the risks facing the labor market have increased. Analysts have highlighted that Powell's recent rhetoric suggests that the Fed is unwilling to tolerate a prolonged weakening of the labor market. This moderation could open the door to a more aggressive relaxation of monetary policy, which could be beneficial for the economy as a whole. However, Fed members seem inclined toward a more gradual approach, with interest rate cuts to be implemented methodically over the coming months. Meanwhile, the market has been weighing the odds of different scenarios, with an expectation that the Fed may opt for a 0.25-point reduction at its next meeting. Uncertainty about the state of employment and the economy in general will be key in determining the direction that monetary policy will take in the near future. Despite the challenges he faces, Powell is optimistic about the possibility of avoiding a recession. He believes that a proper moderation of monetary policy can help the economy reach the desired 2% inflation rate without sacrificing the strength of the labor market. This confidence is reflected in the stance of other central banks, which are also adopting a more cautious approach to inflation management. However, many economists point out that time will tell whether central banks achieve this delicate balance. The decisions they make in the coming months will be crucial in defining the economic trajectory not only of the United States but also of other countries that closely follow their moves. The lingering question is whether this change in monetary policy will be sufficient to avoid the risks of a recession and maintain long-term economic stability.