Complex supply chains, rising raw material costs, and rising consumer demand have combined to rapidly raise prices in many wealthy countries, prompting central banks around the world to begin rolling back some of the extraordinary economic support measures they have put in place during the pandemic.
In the United States, the Federal Reserve is expected to announce a plan on Wednesday. slowing down large-scale asset purchasesA process that officials want to complete before lowering interest rates. Markets expect the Fed to start raising interest rates from near zero in the second half of 2022.
The Bank of England has gone even further: Investors expect it to raise the main interest rate on Thursday. And in Canada, Australia, Norway and elsewhere, monetary authorities have also embarked on callback support or laid the groundwork for a step away from policy assistance.
The move away from full-blown economic stimulus comes in the midst of an inflation boom like no other in the 21st century. Price increases have been chronically weak for decades, but this year, most advanced economies have skyrocketed above the central bank’s target of 2 percent, in part because government subsidies help families spend on everything from home to furniture.
At the same time, supply remained limited after factories closed to contain the spread of the coronavirus and shipping routes struggled to respond to rapidly changing consumption patterns. The combination has caused prices to rise in many places. Inflation in the United States was 4.4 percent per year through September.
The UK’s annual inflation rate was 3.1 percent in September and is expected to rise above 4 percent in the coming months. Supply bottlenecks worsened by Brexitraising trade barriers and contributing to European Union workers leaving the country amid the pandemic. In the euro area, inflation came. 4.1 percent in October, matching the highest ever inflation rate for the block.
NS bank of england If it meets investor expectations on Thursday, it could be the first major central bank to raise interest rates. Andrew BaileyThe central bank’s senior official said the inflation rate is alarming and policymakers must prevent high inflation from becoming permanent, but Thursday’s decision is likely to split the nine-member monetary policy committee as some members have not commented. certainty that rates should increase.
For the European Central Bank, the path forward is not so clear. Last week, the bank’s president, Christine Lagarde, said: higher inflation and supply chain bottlenecks will last longer than expected but it will loosen in 2022. He added that it was wrong for financial markets to expect a rise in interest rates next year because long-term inflation expectations fell short of the ECB target.
European policymakers took one small step to prepare for the end of the immediate support levels. They slowed down last month The pandemic-era bond-buying program attributed the change to an improved outlook for the economy and higher inflation expectations.
Other central banks have been more outspoken about their concerns. NS Bank of Canada abruptly closed Last week, the bond-buying program signaled that it could raise interest rates sooner than expected as the forces pushing prices up prove stronger and more persistent than expected.
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norway central bank already removed interest rates and is expected to increase again in December. NS The Reserve Bank of Australia announced It reported this week that it is ending its program of limiting rates for certain types of debt, citing “earlier-than-expected progress” towards its inflation target.
US policymakers are preparing to turn down their own bond-buying programs, in part because doing so will leave their policies in a more agile position: Officials still expect inflation to decline significantly over time. If not, some policymakers want to be in a position to raise interest rates to end their bond purchases and counter high price increases.
The inflationary moment facing global central banks comes as a surprise. Many have spent years battling tepid inflation, trying to figure out how to return price gains to levels that set the stage for dynamic economies. This situation was quickly reversed – many still waiting for the pandemic price pressure to subside, but how quickly and exactly that will happen is perhaps the biggest question in the global economy.
“The risks are now towards longer and more persistent bottlenecks and thus higher inflation,” Fed Chairman Jerome H. Powell said recently, adding that the Fed is “in a risk management business, not with absolute certainty.” ”