The Fed, the ECB and the BoE jump on the express train of “transitory inflation”

The world’s big central banks are in unison rejecting the idea that higher interest rates will be needed to fight the inflationary wave and now tie their monetary policies strictly to the expectation that overburdened global supply chains are about to ease.

Thursday, the Bank of England (BoE) joined the Federal Reserve from the United States and Banco Central European (ECB) by giving a slight turn in monetary policy expectations and indicating that it foresees that the bottlenecks that strain supply will be unlocked in the coming months, thereby reducing inflation pressures.

The BoE left its benchmark interest rate unchanged on Thursday, contrary to market forecasts, which expected the body to become the first major central bank to raise borrowing costs in light of persistent price increases. .

Inflation is expected to “dissipate over time, as supply disruptions diminish, global demand readjustments and energy prices stop rising,” with a likely peak in April next year, he said. the BoE in its statement Thursday.

The entity said it would focus on “the medium-term inflation outlook to” ignore factors that are likely to be transitory.

The reference is very similar to the way the Fed used the word “transitory” to describe current spikes in inflation, while the ECB indicated that it expected price increases to be “moderate” in the medium term.

In a recent statement, ECB President Christine Lagarde was explicit in saying that the European bank was unlikely to raise interest rates in 2022, in order to appease the markets’ sustained bets to the contrary.

In reality, commitments are being reaffirmed to one of the key monetary policy goals since the onset of the pandemic: keeping borrowing costs low for long enough until families and economies see the end of the crisis. health crisis, a goal that has not yet been reached due to successive outbreaks, lost jobs and uncertainty about structural changes at the labor level.

But now a joint perspective is also building, and there appears to be greater coordination in risk assessment among the central banks that control three of the world’s major reserve currencies, even though many analysts were almost certain there would be a turnaround. to attack inflation head on.

Now, central banks rely on solving problems beyond their control, from delays at ports to the progress of the virus in large industrial areas or the willingness of Americans to go out and seek employment to fill vacant positions, which are at record levels.

“Our tools cannot alleviate supply constraints,” Powell said at a news conference Wednesday, following the release of the latest Fed policy statement.

But, in a perspective now shared among the major developed countries, “we continue to believe that our dynamic economy will adjust to supply and demand imbalances and that, as it does so, inflation will decline to levels much closer to our target of 2% in the long term ”.

The question is whether improvements in supply will occur quickly enough that Powell and his colleagues do not feel the need to intervene by slowing demand with higher interest rates, a step that is considered premature for now, although this depends on inflation eases in the coming months.