Macroscope | Why central banks must do more to tighten their belts

Name: U.K. breaks daily Covid-19 record as Omicron likely to become dominant strain in E.U. by mid-January
Uploaded: 2021-12-20T19:30:18.000Z
Duration: 2 min 17 s
Description: U.K. breaks daily Covid-19 record as Omicron likely to become dominant strain in E.U. by mid-January

The world has suffered too many crash and pandemic misfortunes, and needs interest rates at the right level to deal with future shocks

Central banks aren’t targeting output, inflation and jobs so much as trying to normalise interest rates for better monetary traction in the future

Reading Time:3 minutes

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Shoppers walk through a shopping mall in Columbus, Ohio, US, on December 10. Prices for popular shopping categories are rising the fastest in decades, putting pressure on the Federal Reserve to curb inflation. Photo: Bloomberg

David Brown

Published: 3:30am, 21 Dec 2021Updated: 5:06am, 21 Dec 2021

It’s an old cliché that a stitch in time saves nine, but have central banks missed their chance to bring inflation to heel?

It’s a big issue, especially for global bond markets, whether central banks are ahead or behind the curve on inflation-fighting, or whether last week’s US Federal Reserve shift to a tightening bias and the Bank of England’s opening salvo of higher rates might have hit the timing sweet spot.

Global inflation is subject to a lot of volatility right now thanks to Covid-19 distortions and short-term supply-chain issues, making it extremely hard for central banks to pin down. But the plain truth is that they aren’t targeting output, inflation and jobs so much as trying to normalise interest rates for better monetary traction in the future.

The world has suffered too many crash and pandemic misfortunes, and needs interest rates at the right level to deal with future shocks.

Whether it is another Lehman moment or a new contagion threat, the Fed is doing the right thing in signalling a rise in interest rates back towards a more normal range of 3 per cent to 4 per cent, possibly even higher in the next few years to make a difference the next time the world goes into toxic shock. Black swans have a habit of coming home to roost.

02:17

U.K. breaks daily Covid-19 record as Omicron likely to become dominant strain in E.U. by mid-January

The credibility of the world’s central banks has been in question for far too long and it is time to rebuild confidence in global monetary policy as soon as possible.

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.css-1m2rp1p{color:#34b8b5;}Macroscope | Why central banks must do more to tighten their belts

Macroscope | Why central banks must do more to tighten their belts