Central banks are on course for recession

The world’s central banks have found themselves behind the curve on inflation. Acting to tame it now runs the risk of sparking a recession.

Copper smelting
Copper is the most economically sensitive metal
(Image credit: © Thomas Trutschel/Photothek via Getty Images)

“The central-banking playbook of the 2010s is failing,” says The Economist. Policymaking that was designed for an era of low global inflation is leaving central banks “slow on their feet” and behind the curve on inflation. Now they are racing to catch up. Last week, America’s Federal Reserve raised interest rates by 0.75%, the biggest hike since 1994. The Fed wants investors to believe it will act decisively to tame inflation, “yet it is loath to admit that doing so will probably require a recession”.

The historical record is not encouraging, agrees Jon Sindreu in The Wall Street Journal. “‘Soft landings’ are easier to find in the legendarium of central banks than in historical reality.” Of the 12 times since the 1950s that the Fed has embarked on a major tightening cycle, “nine ended with a recession… The BOE [Bank of England] has a better record, but roughly half of its rate-increase campaigns since the 1950s still ended with a UK recession”. For tighter monetary policy to have any effect on inflation it needs to mean pricier credit or lower asset prices. “That this can happen without affecting anyone’s ‘real’ material conditions is wishful textbook thinking.”

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Markets editor

Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019. 

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere. 

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful. 

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.