For the past few decades, central banks have been at the vanguard of a successful campaign to ward off recessions, even in the aftermath of major crises. But their huge role in propping up markets has had dangerous unintended consequences, that can no longer be ignored.
LONDON – As veterans of past inflation battles know, central bankers must never lower their guard, because the monster is always there, stubbornly waiting for an opening. If central bankers ever think that they have finally prevailed over the problem – that they have a full understanding of all the factors underlying it – they will learn the hard way about inflation’s ability to reinvent itself. Too often, inflation finds allies, like the COVID-19 pandemic, that facilitate its return and confuse policymakers with complicated trade-offs.
LONDON – As veterans of past inflation battles know, central bankers must never lower their guard, because the monster is always there, stubbornly waiting for an opening. If central bankers ever think that they have finally prevailed over the problem – that they have a full understanding of all the factors underlying it – they will learn the hard way about inflation’s ability to reinvent itself. Too often, inflation finds allies, like the COVID-19 pandemic, that facilitate its return and confuse policymakers with complicated trade-offs.