Does the Fed Have its Back to the Wall?

COVID 19 is again dominating the headlines of the various mainstream media now in the form of the new Omicron strain that is spreading rapidly. The virus has now been found in 90 countries, setting the stage for new travel restrictions, lockdowns, and new vaccines. While the new Omicron strain has the potential to cause significant economic damage, the question is who will come to the rescue?

Rising inflation around the world has now fully arrived. In the U.S., official inflation is up 6.8% and official PPI numbers, up 9.6% in November, show no easing for consumers. Inflation also dominates in the Eurozone with PPI figures in Germany close to 20% and in Spain even above 30%.

The Fed and the ECB have recently tried to reassure consumers by saying that this inflation is only temporary. Now, this statement is changing, because they have to realize that inflation is more serious than previously thought.

But this is precisely where the dilemma lies. Rapidly rising inflation is putting central banks in a predicament. On the one hand, they want to stop the rapidly rising inflation to keep the citizens calm, on the other hand, with a new COVID variant that has the potential to cause economic damage, new stimulus measures might be needed.

After their last meeting, the Fed and the ECB announced their intention to end their stimulus measures in 2022. The Fed has already increased its taper to $30 billion and is looking at rate hikes in 2022.

With the new Omicron variant, which will increase the number of cases again, this could change again. For statements in this regard, one will probably have to wait until the new year, but one should not forget this aspect. With these signs, one could guess that the Fed and also the ECB are approaching a dilemma and is possibly already with its back to the wall without being aware of it.

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