- Central banks should not reverse government asset purchases.
- The crypto market has been in red this December.
The US inflation rate just hit 6.8%, the highest in over 40 years, placing pressure on the country’s central banks. Everyone wants to know whether this inflation is transitory or permanent. Persistent problems need less robust solutions. Central banks should not reverse government asset purchases that aided various nations during the COVID economic shock.
The central bankers’ public statements speak to the difficult decisions ahead. According to Federal Reserve Chair Jay Powell, the strong US economy and rising inflation may push the Fed to “taper” its QE asset purchases sooner than expected.
Global Supply Disruption a Major Cause
The recent spike in costs is not as extreme as that experienced in the 1970s and early 1980s. This is one of the biggest surprises since the Bank of England became independent, and the European Central Bank was created.
Global supply disruptions because of the Covid pandemic caused today’s inflation. Inputs like semiconductors were in short supply due to consumer demand rebounding quicker than providers could keep up. Pricing is also being driven higher by shipping container shortages and freight capacity.
Moreover, the crypto market has been in red this December, adding to the investors’ woes. Major coins have been trading in negative with some rebound today.
The predicted rapid economic recovery in 2021 has increased demand for energy, notably in Europe. Meanwhile, baby boomers are retiring in the UK and the US, reducing labour force participation. Limited-term migrants are in short supply in the UK and other northern European economies. Less available personnel demand more significant salaries to fill openings.