Inflation Unraveling Gives the Fed a Nixon Moment
Markets are losing trust that central banks will stay dovish. That’s a test for U.S. policy makers and recalls the breakdown of the Bretton Woods system.
Fleeing the central bank coop?
Photographer: Stephen Dunn/Getty Images
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Maybe the world’s central banks have succeeded too well for their own good. For months since the crisis, the story has been about central banks trying to persuade anyone who will listen that they are doves who are determined to err on the side of accommodating growth, even at the expense of rising prices, and markets flatly disbelieving that they can ever get inflation up. In October, the script turned on its head. Now, central banks are trying to stay dovish, while markets are betting they will be obliged to jump for rate hikes, such is the pressure from inflation.