As the US stock market hits a historic high, the President of the European Central Bank warns: the world economy is facing pressures similar to those of the Great Depression of the last century

After the Federal Reserve cut interest rates by 50 basis points and pushed the U.S. stock market to a historic high two days later, the President of the European Central Bank warned that the global economy is facing pressures of "economic nationalism," global trade collapse, and a repeat of the Great Depression of the 1920s.

Christine Lagarde, speaking at the International Monetary Fund in Washington on Friday, stated, "We are facing the most serious pandemic since the 1920s, the most serious conflict in Europe since the 1940s, and the most serious energy shock since the 1970s."

She also added that these disruptions, along with factors such as supply chain issues, have permanently altered global economic activities.

Lagarde warns of global economic challenges, stating that central banks' ability to respond has significantly improved

She believes that there are similarities between the two twenties - the 1920s and the 2020s - especially in terms of "global trade integration setbacks" and "technological progress."

She pointed out that while monetary policies in the last century exacerbated economic crises, especially the gold standard leading to deflation and banking crises, policymakers today have stronger capabilities in addressing structural changes.

Lagarde emphasized that historical lessons show that fixed exchange rates and pegging currencies to gold are not wise decisions. Past policies pushed the global economy towards deflation, exacerbated economic downturns, and even fueled economic nationalism.

She stated that the tools central banks use to maintain price stability "have proven to be effective." Especially after the rate hikes in 2022, inflation rapidly decreased. Despite the Russia-Ukraine conflict, supply chain disruptions due to the pandemic, and rising energy prices pushing inflation higher, central banks worldwide successfully controlled inflation in less than two years and prevented an increase in unemployment.

Lagarde pointed out that the euro area's annual inflation rate dropped from a peak of 10.6% in October 2022 to 2.2% in August 2023, the lowest in three years. She said that while central banks managed high energy prices, they avoided a significant deterioration in employment, an achievement that is "remarkable."

"It is difficult to avoid a significant deterioration in employment when central banks raise interest rates to address high energy prices. However, since the end of 2022, the euro area has seen an increase of 2.8 million in employment."

However, she warned against complacency, stating that challenges in globalization, partial breakdown of supply chains, the market power of tech giants, and the rapid development of artificial intelligence will continue to test policymakers.

Lagarde stated that the uncertainty for monetary policymakers will "remain high," and the European Central Bank will delve into these issues in the upcoming strategic review. While the 2% medium-term inflation target will not change, the central bank will draw from past experiences to better manage risks and optimize inflation assessment and risk disclosure