Get ready for the big central banks of the world to leave their coordination

The world’s major central banks, which were coordinating measures at the height of the pandemic, are preparing to tighten their monetary policies at very different rates, which is likely to increase the volatility of the market and the economy this year, several monetary authorities said.

Central banks have launched unprecedented stimulus in recent years to boost growth, but excess cash has now pushed inflation to multi-decade highs in much of the world, raising fears that central bankers are becoming falling behind

It is likely that the Federal Reserve (Fed) from U.S lead the way and could go as far as raising interest rates next week, while the Bank of Japan, sitting at the other end of the spectrum, could ease its exceptionally loose policies for years to come.

“The problem here is that what the Fed does has implications for the United States, it has implications for other countries, especially those that have high levels of dollar-denominated debt,” IMF Managing Director Kristalina Georgieva said.

“That could throw cold water on a recovery that is already weak among many countries,” he told a panel at the World Economic Forum, adding that nations with high dollar debt should refinance now.

Indeed, expectations of quicker Fed action have already pushed up borrowing costs around the world and the 10-year German bund yield briefly moved into positive territory this week for the first time since early 2019. .

Georgieva noted that it was imperative to contain the pandemic and increase vaccination rates to address the widening gap between rich and poor countries, and to ensure future growth for all.

“The world must spend the billions needed to contain COVID to gain trillions in production,” he said.

The problem with inflation is that its rates now differ wildly around the world, leading to a varying degree of social and political tension as the prices of everyday consumer goods, from food to fuel, soar.

Inflation in the United States is now at 7%, the highest rate since 1982, prompting politicians to abandon the idea that the increase is transitory. Meanwhile, in the euro zone, price growth is 5%, but will be below 2% again by the end of the year, while in Japan, the rate is only 0.6%.

different speeds

The big difference is that the US recovery is well under way, leading to the kind of wage growth and labor market strain that others are not yet experiencing.

“When I look at the labor market, we are not experiencing anything like ‘the big quit’ and our labor participation numbers are getting closer to the pre-pandemic level,” said the president of the Banco Central European (ECB), Christine Lagarde, to the online panel.

“Hopefully those two factors, if you look closely at them, clearly indicate that we are not moving at the same speed and are unlikely to experience the same type of increases in inflation that the US market is facing,” he added.

Still, the ECB has also started to back away from its exceptionally loose policy and plans to continue cutting asset purchases throughout the year, Lagarde added.

Meanwhile, Bank of Japan Governor Haruhiko Kuroda said his bank is not even contemplating a move in that direction yet.

“We are not afraid of inflation because inflation (in Japan) is very low. Unlike the US or Europe, we have to continue our extremely accommodative and loose monetary policy for the time being,” Kuroda said.