Central Banks Can’t Fend Off Stagflation Alone

Central bankers, the shining saviors of the global economy after the global financial crisis and again during the pandemic, are fast becoming the villains of the prevailing narrative. Noodling with interest-rate hikes that are both too late and too small and trimming morsels off their swollen balance sheets won’t prevent inflation from soaring toward double digits. But crashing into recession to compensate for being asleep at the stimulus wheel for too long would just be a different flavor of failure. What’s needed is for fiscal policy to shoulder more of the economic burden.

After a brief period of joined-up thinking, when increased government spending was coordinated with innovative stimulus programs, we’re back to central banks as the sole bulwarks against stagflation. The current disconnect between fiscal and monetary policy leaves the guardians of financial stability — and their independence — dangerously exposed to attack.