One might argue that central banks’ interest-rate hikes and hawkish inflation rhetoric are working: inflation expectations have stabilized in the eurozone, the US, and the UK. But there is reason to fear that policymakers are going too far too fast, especially in Europe, where the energy crisis is eroding real disposable incomes.
LONDON – Inflation’s return from the dead has brought the era of easy monetary policy to an end. The US Federal Reserve, the European Central Bank, and others are planning to shrink their balance sheets, but this is a process that will most likely unfold very slowly. In the meantime, the heavy lifting will be done the old-fashioned way: hiking short-term interest rates to rein in aggregate demand. But policymakers should be careful not to get ahead of themselves.
LONDON – Inflation’s return from the dead has brought the era of easy monetary policy to an end. The US Federal Reserve, the European Central Bank, and others are planning to shrink their balance sheets, but this is a process that will most likely unfold very slowly. In the meantime, the heavy lifting will be done the old-fashioned way: hiking short-term interest rates to rein in aggregate demand. But policymakers should be careful not to get ahead of themselves.