Written by Ian Kilbride, Chairman of The Spirit Organisation US Federal Reserve Chairman, Jerome Powell’s announcement of a 75-basis point hike in the key US interest rate denotes that central banks are finally dispensing the bitter medicine to bring inflation under control. I would argue that the Fed has been behind the curve in not anticipating a more sustained period of inflation, nor indeed the rapidity and intensity of the upward curve. This is borne out by the fact this week’s interest rate hike is the highest in almost thirty years. This is a lesson to us all about complacency, combined with conceptual and institutional inertia. Simply because central banks have more or less got it right for the past few decades (even during the global financial crisis of 2008 and indeed in response to the Covid-19 pandemic economic lock-downs), this does not translate into omniscience. Monetary policy committees, whether in the US, Europe, Asia or South Africa rely on available data, past experience and future modelling, yet all of this amounts to imperfect knowledge. Moreover, like it or not, and despite their constitutional and legal mandates, reserve banks are not insulated from the social, economic and political pressures of […]
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