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When Central Bankers Become the Target

With inflation surging, central bankers would be wise not to assume that their reputations will automatically recover and the status quo ante will be restored. They will need to marshal their defenses more effectively and should not regard central bank independence as the end of monetary history.

LONDON – Who would want to be responsible for monetary policy in 2022? To judge from the fierce economic and political debates underway around the world, it is as though open season has been declared on central bank governors: They are being shot at from all sides.

US Federal Reserve Chair Jerome Powell and his colleagues are accused of failing to spot the early signs of an inflationary threat last year. As late as last autumn, they were arguing that price rises were “transitory.” With annual US inflation today approaching double figures, that looks to have been a poor judgment. But now that the Fed has acknowledged its mistake and is raising interest rates, many accuse it of choking off the post-pandemic recovery, collapsing both equity and bond markets, and precipitating a recession.

The European Central Bank has still not begun to raise rates, though it is expected to do so in July. The ECB is charged both with indecision and with sowing the seeds of a new eurozone crisis by suggesting a potential reversal of quantitative easing. The spread between the yields on Italian and German government bonds has widened considerably, threatening the fiscal stability of southern Europe. An anti-fragmentation weapon has been promised, but remains on the drawing board for now.

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