“But the balance of risks has deteriorated, and we believe that rapid easing is going to be needed to forestall a more negative outcome. Our base case envisions a fairly rapid effort by policymakers to get rates back to their long-run equilibrium level in the next few quarters. That expectation, however, is written in pencil, not ink. If the global economy weakens beyond our expectations, rate cuts will come even faster than that. In that light, we think central banks have room to maneuver. The inflation battle’s legacy is that policy rates start this cycle well above their medium-term norms. That gives central banks ample room to ease aggressively as needed, which should mitigate some of the downside risk to financial markets.”
Morten W. Langer
