“The global economy faces a long list of uncertainties -growth, inflation, interest rates, political, geopolitical, tariffs, etc. When uncertainty is exceptionally high, as is the case today, the economic environment becomes intrinsically unstable and may evolve suddenly and drastically. This acts as an economic headwind because companies that are highly exposed to these sources of uncertainty may postpone investment and hiring decisions. This may weigh on household confidence, triggering a reduction in discretionary spending. Financial markets may also become more volatile because investors shorten their investment horizon. There is a clear urgency of creating a predictable policy environment. When discussing the inevitable uncertainties of the economic outlook, central bankers or economic commentators in general, often refer to the balance of risks. ECB
President Christine Lagarde stated in her press conference in December that risks to growth remain tilted to the downside.[1] In the US, Fed Chair Jerome Powell recently commented that the FOMC sees the risks to achieving its employment and inflation goals as being roughly in balance.[2] These statements are useful but they only tell us something about the risks that would tip the balance in one or another direction or that would keep each other in check. They do not convey information about a more fundamental question, which is the degree of uncertainty. Is it higher or lower than normal? At the current juncture, we can safely say that it is exceptionally high.”
Morten W. Langer
