MNI: 'Last Mile' Could Still Be The Hardest - BIS' Carstens

Bank for International Settlements General Manager Agustin Carstens on Monday said recent central banks' "success we have had so far must not breed complacency," even as most major institutions have signaled policy rates have likely peaked.

"The job is not complete yet, and considerable risks remain," he said in prepared remarks, noting the end of exceptional tightening is in sight. "Policymakers must heed the signposts and remain steadfast in their commitment to completing the disinflation journey while reinvigorating efforts to ensure sustainable fiscal paths and lift productivity growth."

Carstens said there are various forces that could keep adding pressure on inflation – loose fiscal policy, the catch-up in real wages, waning disinflationary factors, and possibly a premature easing of financial conditions.

"My main concern is that inflation rates may not return to target levels as quickly and as firmly as most forecasters expect," he said. "As has been said many times, the last mile could still be the hardest." (See: MNI INTERVIEW: Fed Might Not Cut At All In '24-Ex-Fed Economist)

Central banks would also not be able to simply look through renewed supply shocks, said Carstens, calling it a relevant risk given the backdrop of geopolitical tensions, challenges posed by the green transition, and adverse demographic forces.

"In normal times, when inflation hovers around target, central banks would generally be able to see through the temporary increase in inflation triggered by adverse supply shocks," he said in a speech in Switzerland. "But these are not normal times. After a prolonged period of elevated inflation, letting inflation surge again – even if on the back of a temporary shock – would be a very risky strategy."