the exterior of the marriner s eccles federal reserve board building is seen in washington dc us june 14 2022 reuterssarah silbigerfile photo jackson hole wyo aug 27 reuters  central banks will fail to control inflation and could even push price growth higher unless governments start playing their part with more prudent budget policies according to a study presented to policymakers at the jackson hole conference in the united states governments around the world opened their coffers during the covid19 pandemic to prop up economies but those efforts have helped push inflation ratesto their highest levels in nearly half a century raising the risk that rapid price growth will become entrenched central banks are now raising interest rates but the new study presented on saturday at the kansas city federal reserves jackson hole economic symposium argued that a central banks inflationfighting reputation is not decisive in such a scenario if the monetary tightening is not supported by the expectation of appropriate fiscal adjustments the deterioration of fiscal imbalances leads to even higher inflationary pressure said francesco bianchi of johns hopkins university and leonardo melosi of the chicago fed as a result a vicious circle of rising nominal interest rates rising inflation economic stagnation and increasing debt would arise the paper argued in this pathological situation monetary tightening would actually spur higher inflation and would spark a pernicious fiscal stagflation on track this fiscal year to come in at just over 1 trillion the us budget deficit is set to be far smaller than earlier projected but at 39 of gdp it remains historically high and is seen declining only marginally next year the euro zone which is also struggling with high inflation is likely to follow a similar path with its deficit hitting 38 this year and staying elevated for years particularly as the bloc is likely to suffer a recession starting in the fourth quarter the study argued that around half of the recent surge in us inflation was due to fiscal policy and an erosion in beliefs that the government would run prudent fiscal policies while some central banks have been criticised for recognising the inflation problem too late the study argued that even earlier rate hikes would have been futile more hawkish fed policy would have lowered inflation by only 1 percentage point at the cost of reducing output by around 34 percentage points the authors said this is a quite large sacrifice ratio to control inflation fiscal policy must work in tandem with monetary policy and reassure people that instead of inflating away debt the government would raise taxes or cut expenditures