Central banks rode to the rescue of nervous investors for years. But now they are raising rates just as the world economy spirals downwards
that investors are panicked by the uncertainty. Shares in the US, where the S&P 500 index is down by almost a quarter since January, have suffered their worst start to a year for 60 years.
Not any more. This time there is a real war, not just a financial one, and no one quite knows what to do. The major powers cannot agree about how to fight it and policymakers cannot agree about how to handle the fallout, especially the shortages of raw materials and food from Ukraine and Russia that areIn particular, central banks have lost their nerve. Instead of being a reassuring presence, they are adding to the sense of panic by increasing the cost of borrowing.
We know that an increase in the cost of borrowing in the UK, the eurozone and the US, which is what we are now witnessing, will do nothing to bring down prices. In Britain, this argument presumes that the average worker, to prevent a fall in personal living standards, will be able to negotiate a pay deal that beats the Bank of England’s latest forecast for peak inflation later this year of 11%.