Why Central Banks Should Tread Carefully - Haver Analytics

The Federal Reserve, Bank of Canada, European Central Bank and Bank of Japan meet this week against a difficult backdrop. An energy shock has pushed inflation higher just as households and businesses are contending with expensive borrowing. Economic growth has proved resilient, but the question for policymakers is how secure that resilience really is. There is a strong case for caution before tightening monetary policy further. The immediate dilemma is familiar. Central banks cannot prevent an oil price shock, but they must guard against its spreading into wages, other prices and inflation expectations. At the same time, higher energy bills reduce spending power and raise costs for businesses.