Central Bank Interest Rate Policy Amplification In One Picture – Mish Talk

Monetary Policies Risk a Historic Global Slowdown

With a major ongoing debate as to how many rate hikes will  take to slow inflation, the PIIE says Uncoordinated Monetary Policies Risk a Historic Global Slowdown.

Central banks nearly everywhere feel accused of being on the back foot. The present danger, however, is not so much that current and planned moves will fail eventually to quell inflation. It is that they collectively go too far and drive the world economy into an unnecessarily harsh contraction. Just as central banks (especially those of the richer countries) misread the factors driving inflation when it was rising in 2021, they may also be underestimating the speed with which inflation could fall as their economies slow. And, as often is the case, by simultaneously all going in the same direction, they risk reinforcing each other’s policy impacts without taking that feedback loop into account. The highly globalized nature of today’s world economy amplifies the risk.