Inflation Menace vs Pandemic Recovery: Central Bank Guide for 2022

Global central banks are set to spend 2022 diverging, as some take on the menace of inflation and others stay focused on boosting economic growth.

The pandemic remains a risk to demand the world over, but after triggering a recession in 2020, its subsequent igniting of price pressures has also posed a challenge for monetary policy makers.

They enter a new year having to tread carefully. Acting quickly to control prices could end up quashing expansions, especially if inflation fades anyway.

Waiting longer to secure recoveries might mean inflation festers, requiring stronger action later.

Increasingly rattled by the outlook, the Federal Reserve is set to hike interest rates for the first time since 2018, although its peers in Canada and the U.K. may shift even sooner.

Thirteen counterparts tracked here are also seen tightening, including most of the emerging market institutions that led the charge with rate hikes in 2021.

By contrast, the European Central Bank and Bank of Japan could end the year where they started, with rates at rock-bottom levels as they try to safeguard growth.

As for China, it’s seen cutting its benchmark as officials try to cushion a slowdown in the world’s No. 2 economy.

What Bloomberg Economics Says:

“In 2022, the great decoupling that has already hit trade, finance and technology will come to central banking -- with the Fed rushing into a tightening cycle even as the People’s Bank of China starts to add stimulus. A world divided into separate spheres of monetary influence -- with Asian central banks dragged into the orbit of the PBOC -- will be an important new dynamic for markets to navigate.”

--Tom Orlik, chief economist

Here is Bloomberg’s quarterly guide to 23 of the world’s top central banks, covering 90% of the world economy:

GROUP OF SEVEN

U.S. Federal Reserve

  • Current federal funds rate (upper bound): 0.25%
  • Bloomberg Economics forecast for end of 2022: 1%
  • Bloomberg Economics forecast for end of 2023: 2%

Fed Chair Jerome Powell and his colleagues could raise rates as soon as March as they confront the hottest inflation in nearly 40 years, although omicron may be grounds for delay.