Financial markets fear the world’s leading central banks are risking “economic disaster” by misjudging the threat of rising inflation and not turning off the stimulus taps that have flooded the global economy with money.
From the Federal Reserve to the European Central Bank, policymakers are grappling with a surge in prices not seen for decades while trying to keep wobbly economies on course to recovery from the ravages of the coronavirus pandemic.
While central banks stick largely to the mantra that inflation is “transitory” and price pressures on everything from timber to turkeys will ease in the coming months, economists, business leaders and investors are ringing alarm bells.
They fear that without swift action, such as a rise in interest rates, runaway inflation – which has not been seen in developed economies since the early 1980s – will become so embedded by next year that a policy switch will be too late to have any effect. At the very least, they see this as critical moment to end the massive money-printing schemes that were ramped up to counter a pandemic recession.
Julian Jessop, an independent economist who has worked at the UK Treasury and City firms, said most central banks were “well behind the curve” and that rising costs throughout the supply chain, such as in shipping, would continue to put upward pressure on prices well into next year.
“Central banks need to respond to changing economic conditions,” he said. “The recession that justified the additional quantitative easing and keeping interest rates at emergency lows is over.”