The Omicron variant is circling the globe, closing borders and sparking new restrictions on economic activity. Yet central banks, instead of loosening monetary policy to prop up their economies as they did at the start of the pandemic, are moving to unwind stimulus and raise interest rates.
The moves reflect a new thinking among policy makers about the pandemic’s economic effects: Central-bank officials worry that rather than simply threatening to curtail economic growth, a surge in Covid-19 cases could also prolong high inflation.
In the past week, the Federal Reserve, the Bank of England and the European Central Bank all moved to tighten monetary policy in response to inflation concerns.
When the pandemic first became widespread, in early 2020, governments locked down their economies. Consumer spending fell sharply, employers shed workers and prices fell. Within a few months, the rise of e-commerce and remote working allowed the economy in many developed countries to recover rapidly. With mass vaccinations, that recovery has continued this year.
Central-bank officials worry that rather than simply threatening to curtail economic growth, a surge in Covid-19 cases could also prolong high inflation https://t.co/NgdMbwDeym
— The Wall Street Journal (@WSJ) December 19, 2021