It’s Time to Pivot From Fiscal Support, Researchers Tell Fed Conference

“Continued fiscal support in AEs (advanced economies) in the context of a normalization of private demand would result in a rapid increase in global interest rates and possible price inflation,” University of California Berkeley’s Pierre Olivier Gourinchas and co-authors wrote in a paper presented at the Kansas City Fed’s annual economic symposium, held online for the second year in a row due to COVID-19.

If advanced economies tighten monetary policy earlier than otherwise, they wrote, emerging markets — already vulnerable because of their own limited fiscal options and lack of access to vaccines to keep the pandemic at bay — could face “strong adverse consequences.”

“The global policy mix should pivot away from fiscal support to careful macroprudential and monetary/financial policies,” Gourinchas wrote.

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(Reporting by Ann Saphir; Editing by Chizu Nomiyama)