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Economy is not so hot, but the Bank still needs to hike rates

17 May 2022
Publisher: Business Day

Lauded as central bank, it must be responsive to pressure to maintain its policy credibility.

Quite unfortunately, I have an “optimism bias”. I thought the global economy would defy the drag from US monetary policy tightening and maintain growth momentum. This view has now become difficult, if not impossible, to defend. The likelihood that the Federal Reserve (Fed) can get inflation under control without pushing the US and thus the global economy into recession is low.

While some commentators blame the war in Ukraine for food and fuel price shocks and recent inflationary pressures, the truth is that prices were already high before Vladimir Putin decided to invade. Inflation was already evident in the global economy generally and the US economy in particular. The enormous injection of liquidity into the global economy by the Fed, money drops by the Treasury and money drops by the IMF, caused the global economy to recover in record time…

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