Investing.com investing.com 29 Dec, 2020 16:45 am

Central Banks Will Face Challenges Managing Expectations As Economies Recover

Central Banks Will Face Challenges Managing Expectations As Economies Recover
Market Overview Analysis by Investing.com (Darrell Delamaide/Investing.com) covering: EUR/USD, USD/CNY, US Dollar Index Futures. Read Investing.com (Darrell Delamaide/Investing.com)'s latest article on Investing.com

That's the challenge facing central banks as vaccine rollouts promise an end to the COVID-19 crisis.Central banks flooded the financial system with liquidity, backstopped markets as lender and buyer of last resort, and reassured investors they could create an infinite amount of money to cope with the crisis.Ultimately, the question for the Fed and other central banks is whether inflation will start to accelerate.Other central banks will be constrained to follow the Fed’s lead.

Having hauled out a bazooka and even much greater firepower to keep investors in line during the pandemic, how will central bank policymakers be able to manage the trick of stowing these big guns away?The Fed has grown more cautious in its remarks, but that doesn’t solve the fundamental problem of communicating central bank intentions and, even more important, convincing investors that the eventual tightening of monetary policy is in their best interest.

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