Asia and the United States Continue to Battle Inflation
Although Asia has fared better in the global struggle with inflation, it continues to feel ripple effects from the United States, where Kroszner said some observers are hoping for a soft landing where inflation drops without a rise in unemployment. The Federal Reserve continues to raise rates amid a strong labor market, albeit at a slower pace.
“The Fed is going to keep at it until they see the labor market weaken, because they are not going to be convinced inflation will come down on a sustainable basis unless the labor market does,” he said. “The challenge is to weaken the labor market just a little bit without weakening it a lot.”
The Reserve Bank of India is following a similar path, said Bhandari, as it slowly pumps the brakes on rate hikes. India’s recent challenges included a strong dollar, a ballooning current account deficit, and an exposure to oil prices, but it may finally be turning a corner, she said, thanks to a depreciation in the rupee and fiscal consolidation. The challenge for 2023 will be how to stem equity outflows.
In China, a question mark hangs over who will take leadership of the People’s Bank of China when new appointments are announced in March, said Hsieh. Also unknown is the replacement for vice premier and politburo member Liu He, the Harvard-educated economist who led trade negotiations with the US.