Speakers: Charles Goodhart (LSE) and Manoj Pradhan (Talking Heads Macroeconomics)

Chair: Sir Charles Bean (LSE)

Through little fault of their own, central banks face an erosion of their ability to fight inflation single-mindedly as they have done in the past.

In this sequel to Charles Goodhart and Manoj Pradhan's first book, "The Great Demographic Reversal", they argue that (i) demography and recent trends in immigration will lead to much greater fiscal deterioration than forecasts suggest, (ii) real interest rates will rise because government dissavings will handily counterbalance any increase in household savings in an increasingly aged society, and (iii) as China’s disinflationary influence subsides over the medium-term, inflation will rise.

Could AI offset demographic headwinds? Possibly, but AI is unlike technological shocks of the past, and history suggests innovations tend to lead to net gains in employment, especially in the medium term. Similarly, China could generate uncertain near-term effects, but is unlikely to be a disinflationary force in the medium term.

The net outcome for monetary policy is not encouraging. Fighting inflation in highly indebted economies can lead to financial instability in the near term, or (ironically) more inflation in the future. The glory days of central banks, the authors argue, may be behind us.