it is premature to declare the phillips curve dead. inflation will return when tightening cyclical factors outweigh the structural disinflationary forces. and the us could be the first country to show signs of a turnaround in inflation. 3 / 7 bis central bankers'speeches its output and unemployment gaps are more or less closed. and the recently announced tax cuts could end up boosting aggregate demand beyond the productive capacity of the economy. the structural factors could well be having a “ one - off ” effect on prices, rather than a continuing dampening impact on inflation. the disinflationary effects of globalisation may not persist for much longer. the world has already globalised considerably over the last two decades. with populist pressures, it is unlikely the trend will continue at the same pace. technological change may still have some legs to run and its disinflationary effects may persist for a while longer. but will they be strong enough to offset the short - term inflationary pressures from tightening cyclical conditions? so what happens if inflation returns sooner or comes in higher than expected? central banks will obviously have to tighten monetary policy faster and by more. that in itself should not derail economic growth as long as the tightening is done judiciously and credibly. no central bank wants to cure inflation by creating a recession. but monetary policy tightening has always been a tricky business fraught with risk. more so now, with the economy attuned to a prolonged period of very low interest rates for such a long time. an increase in interest rates could put considerable strain on debt service ratios and lead to sharp cutbacks in household and corporate spending. for investors, inflation is the biggest bear to watch because monetary policy could tighten at a quicker pace than expected by the markets. markets are currently pricing in only about three fed rate hikes to end - 2019, so it may not take much to unsettle the markets. equities, whose valuations are premised on low discount rates, could sell off in a hurry. “ mama bear ” - protectionism let me now turn to “ mama bear ” protectionism. and let us not take a hibernating bear for a dead one. this is a bear that may not wake up for a very long time, maybe never. but if it does, it could be ferocious. protectionism was the biggest fear this time last year. there were populist backlashes against globalisation, represented

most vividly by the results of the brexit referendum in the uk and presidential elections in the us. the great relief of 2017 was that this risk did not materialise sufficiently to threaten the global economy or financial markets. but globalisation continues to face challenges. the wto ministerial meeting last month ended inconclusively. 4 / 7 bis central bankers'speeches the us pulled out of the trans - pacific partnership ( tpp ) early last year and has threatened to leave nafta. in europe, the risk of a hard brexit is not trivial. if negotiations break down, both the uk and eu will bear high disruption costs. protectionism can do much harm to the global economy because its reach extends beyond the flow of goods and services, to the flow of capital and technology. large countries have been toughening restrictions on foreign acquisitions and flow of technologies. the us committee on foreign investments objected to a record number of requests by overseas investors in 2017. the eu is planning to implement a screening framework for cross - border acquisitions. us tax reforms may potentially have adverse consequences for international trade and investment flows. the finance ministers of france, germany, italy, spain and the uk have written to the us, warning that some provisions of the us tax cuts and jobs act may contravene international trade agreements and tax treaties. for example, a 20 % excise tax could be imposed on payments an american company makes for buying goods or services from its foreign subsidiary. we will do well not to get complacent about the return of “ mama bear ” because the underlying causes for populist anger and support for protectionism are deeply rooted. income inequality in many advanced economies remains wide. according to research by mckinsey, two - thirds of households in the us and western europe have experienced stagnating or falling real income between 2005 and 2014. trade and immigration are the obvious scapegoats for voters frustrated by the stagnation in living standards. the risk remains that some countries may erect trade and investment barriers and others may do so in retaliation. a protectionist spiral will almost certainly derail the growth momentum, not just for 2018 but beyond. “ baby bear ” - financial instability and finally, the “ baby bear ” of financial instability. a financial crisis is a sure way of thwarting economic growth, as we saw nine years ago. what is the risk now? from one perspective, the wide - ranging post - crisis regulatory reforms have made the