Why Pandemic Nostalgia is Haunting Central Banks
When Covid arrived and economies tanked, officials knew what to do. Things are better now — and much harder to navigate, while the risks of a misstep are significant.
Central Banks are sending out confusing signals.
Photographer: Samuel Corum/BloombergIt’s almost enough to make you nostalgic for the early months of the pandemic. There was clarity of economic purpose: dramatic cuts in interest rates and big fiscal commitments. The outlook was so dire there were few plausible alternatives. Conditions are much more favorable now, and ironically, that makes the choices tougher.
The economic recovery is looking a little shopworn. Growth is solid, but the pace of expansion has slowed. The jobs picture is better, though far from ideal. Inflation is no longer so low that it qualifies for the endangered species list. If anything, it’s a bit too high for comfort. “Transient,” once the Federal Reserve’s favorite word to describe the spike in prices, doesn’t mean gone tomorrow. Central banks are beginning to trim accommodation, or thinking about doing so, but are starting to trip over their messages. The risk of a misstep is significant.