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Opinion
Mohamed A. El-Erian

Central Banks Are Playing Catch-Up in Different Ways

They are splitting into three camps on inflation when the global economy needs greater consistency.

Global monetary policy is splitting into three camps.

Global monetary policy is splitting into three camps.

Photographer: Carl de Souza/AFP/Getty Images

Having been late in identifying persistent drivers of inflation, central banks in advanced countries are — as a group — now figuring out how best to play catch-up on monetary policy. Within this group, however, are different approaches.

Some central banks, following the example of an increasing number of developing countries, are cautiously tightening policies as soon as possible. Others continue to defy the inflation dynamic, citing countervailing issues particular to their economies. Then there are the in-betweens, seemingly wishing to transition but not quite sure how best to do so because they have made themselves hostage for too long to an incorrect transitory inflation call and an ill-timed policy framework shift — an issue that is prominent this week in light of the Federal Reserve’s policy meeting, which concludes on Wednesday.