Skip to content
Opinion
Daniel Moss

Why Interest-Rate Hawks May Not Sweep All Before Them in 2022

Living with Covid means ultra-easy money won’t be quite so plentiful. That doesn’t require the monetary priests to strangle the recovery. 

It was a bleak end to 2021 outside the Bank of England, but maybe not as bad as it looked. 

It was a bleak end to 2021 outside the Bank of England, but maybe not as bad as it looked. 

Photographer: Jason Alden/Bloomberg

The much-trumpeted transition to living with Covid-19 means adjusting to monetary policy that is a bit less free and easy. The shift — easy to talk about, hard to execute — doesn’t mean signing up to an unqualified assault on inflation.

The idea that 2022 will be dominated by interest-rate hikes was all the rage in the closing days of December. That sentiment was driven in large part by a surprise rate increase from the Bank of England, and, to a lesser extent, by the Federal Reserve’s decision to double the pace that it tapers bond purchases. Economists raced to pencil in additional steps to tighten policy, reflecting officials’ concern that inflation is too elevated for comfort. So dominant has this idea become that it risks missing significant nuances: Some central banks will proceed to nudge up rates while others resist the stampede. Among the early movers, look carefully for signs of diffidence. 

If omicron delivers just a few scratches, then banks in the Asia-Pacific region that pursued a hawkish approach in 2021, such as South Korea and New Zealand, will be vindicated. Should the hit to growth be significant, then recalibration might be be quick. The fight against inflation won’t be heedless of the potential costs.