Fed and European Central Bank Authorities Warn Supply Chain Disruptions Could Worsen

(source: unsplash.com)

Supply constraints, which have been preventing a rebound in global economic growth, may worsen, keeping inflation elevated longer, top banking authorities warned at a conference with the European Central Bank’s (ECB) Forum on Central Banking. These pandemic-related disruptions to the economy have upset supply chains across continents, leaving the global supply short of goods and services, ranging from auto parts and computer chips, to container capacity aboard vessels that transport goods globally.

“It’s … frustrating to see the bottlenecks and supply chain problems not getting better, in fact at the margin apparently getting a little bit worse,” Federal Reserve Chair Jerome Powell told the conference panel. “We see that continuing into next year probably and holding inflation up longer than we had thought.”

ECB chief Christine Lagarde voiced similar concerns- “The supply bottlenecks and the disruption of supply chains, which we have been experiencing for a few months … seem to be continuing and in some sectors accelerating,”

Meanwhile, global inflation has spiked in recent months, due primarily to surging energy prices; if this pressure persists, the overall profile of inflation could rise. Lagarde said the ECB would be “very attentive” to this development, and Bank of England Governor Andrew Bailey also promised a “very close watch” on inflation expectations. “If this period of higher inflation, even though it ultimately is very likely to prove temporary, if it lasts long enough, will it start affecting, changing the way people think about inflation? We monitor this very carefully,” Powell added.

One main issue is the limited power of central banks- lacking direct influence over short-term supply disruptions, banks often must wait for economic conditions like these to self-correct. Still, despite the concerns of policymakers, all appear to maintain the standing view that this spike is temporary and that price increases would moderate next year.

However, statements made at the panel reinforced expectations for the world’s biggest central banks to create their own very different schedules to phase out pandemic stimulus measures.
The Federal Reserve, the Bank of England (BoE) and the Bank of Canada are already discussing tightening policy measures, while central banks in such countries as South Korea, Norway and Hungary have raised interest rates in an effort to normalize economically. The ECB and the Bank of Japan are likely to move most conservatively, after undershooting their inflation targets for years.

The above is a summary of one or more news stories reviewed by the author of this article. It may contain comments or views of the author only.

This article is intended for general interest and does not constitute legal advice.

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