The head of the World Bank thinks it might take years to get prices back under control as the U.S. and other economies face inflation rates not seen in decades.
“It’s going to take months and months, and maybe two years to bring inflation back down,” said David Malpass on CBS’s Face the Nation Sunday.
Record inflation and shortages of key commodities like oil, fertilizer, and wheat, mean “it’s going to be very hard” for some countries to avoid recession, Malpass said.
“A lot of the world is shutting down for lack of fertilizer. And then those shortages of crops will last for multiple years,” said Malpass, warning that food shortages might lead to “instability” in poorer countries.
The U.S. recorded 8.6% inflation in May, a 40-year high, spurring the Federal Reserve to plan a series of aggressive interest rate hikes to bring prices back to a reasonable level. The Federal Reserve increased interest rates by 0.75 percentage points on June 15, its most aggressive hike in almost 30 years. The World Bank is concerned that interest rate hikes in advanced economies could drag down the world economy.
“The recovery from the stagflation of the 1970s required steep increases in interest rates by major advanced-economy central banks to quell inflation, which triggered a global recession,” wrote the World Bank in its June report on global economic prospects.
Malpass suggested that U.S. Federal Reserve Chair Jerome Powell focus less on interest rate hikes and start using the central bank’s regulatory tools to tame inflation.
“Let the banks lend more,” said Malpass. “It could put more money into the supply chain,” alleviating the supply constraints that are driving current inflation.
For now, the World Bank isn’t projecting a recession in the U.S. Earlier this month, the World Bank estimated that the U.S. wasn’t likely to head into a recession, forecasting 2.5% GDP growth for 2022. That’s still a 1.2 percentage point drop from the forecast the bank made in January, and a 3.2 percentage point drop from the bank’s estimate of 5.7% growth in 2021.
The World Bank also predicted that global growth would slow to 2.9%, a drop of 1.2 percentage points from their January forecast, and a 2.8 percentage point drop from their 2021 estimate of 5.7% global GDP growth.
But Malpass admits that a recession in the U.S. isn’t out of the question, saying he doesn’t disagree with estimates that put the risk of a recession in the U.S. as high as 50%.
In a Wednesday Senate hearing, Powell noted that a recession was “certainly a possibility,” saying that bringing down inflation while preserving growth “is going to be very challenging.” A survey of economists earlier this month gave a 66% chance that the U.S. would fall into recession in 2023.
This story was originally featured on Fortune.com