Fynsa
I've just returned from a wonderful trip. More than a year ago, during one of the most difficult times of the pandemic—with total lockdowns, permits required even to go buy bread, and no ability to visit family or friends—I needed a project that would allow me (and us) to escape a little from the difficult reality we were facing. That’s how, in an unprecedented move, I signed up for the Ironman 70.3 in Hawaii. At that time, the borders were closed; I’d been lucky enough to have received my first vaccine dose; no large-scale sporting events were taking place; and I hadn’t even competed in my first triathlon yet. That’s just how risky, irrational, and challenging my plan was, but I have to admit that it gave purpose to many things that were happening at the time.
I shared my crazy idea with some friends, and I was really surprised when so many of them started following me, sending screenshots of their sign-ups. The whole thing spread beyond my circle; a WhatsApp group was created, and people from other teams and other cities started joining—all driven by the same urge to do something out of the ordinary in such a difficult situation (more information on that here). Through all the ups and downs, the year went by, and the time came to face the competition. My plan was to break the elusive 6-hour mark, and I felt pretty well prepared for it, after a lot of training, nutrition plans, mental preparation, and experience from other races. I did everything according to plan; all my efforts were focused on that goal; I felt strong, and yet I posted the worst time I’ve ever recorded for that distance. Why did that happen? Basically because I focused on everything I could control and just had to accept what I couldn’t: a head current during the swim, wind, and about three different weather conditions on the bike, hellish heat during the run, etc.
Yeah, that's a really nice story, but what does this have to do with economics? You came here to read about that, right? Well, even though I’m on a family vacation—my first in about six years—in a paradise on earth, my professional bias couldn’t stop me from keep an eye on local and global economic developments, which over the past two weeks have centered on the actions of central banks, the fight against inflation, and the possibility that the world’s major economies might enter a recession. Consumer prices continue to rise, supply constraints show no sign of easing, and monetary policy is striving to maintain control over inflation.
My impression is that the work central banks are doing now has little to do with controlling current inflation—or even inflation over the next 12 months. I’ll go even further: perhaps they can’t even do so with regard to the two-year inflation rate, which for many is the primary objective. As I gathered from the Fed’s statement, the press conference, and the projections, the Federal Reserve is currently fighting against expectations, since, in one way or another, that seems to be the only thing it can control (or attempt to control) given the current macroeconomic conditions . Our central bank faces a similar situation, as I mentioned in this very column a few weeks ago. I can do nothing about swimming against the current or the scorching heat, just as monetary policy can do little to control supply problems, the armed conflict in Europe or the lockdowns caused by the zero-COVID policy—all of which are the main drivers of current inflation (I’m generalizing, of course—the impact is greater in some countries and less in others). But it can take action today to maintain its credibility tomorrow by raising rates, surprising the market, and telling it that it will do everything possible to ensure its targets are met within the relevant timeframes. Inflation expectations in the U.S. and Chile for the next two years are around 2% and 3%, respectively, as measured by various indicators. If this situation persists and begins to affect not only financial assets but also people’s daily decisions regarding contracts, adjustments, etc., disanchoring will not be a problem for inflation today, but will be far more serious for tomorrow’s inflation. And it would seem that this is the only course of action that central banks can implement today, turning a (slight) blind eye to current price fluctuations. Just like me—I was happy even though I ran 44 minutes longer than I had planned.
