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Central Bankers Getting Twitchy

Central Bankers Getting TwitchyCentral Bankers Getting Twitchy

A significant pickup in inflation still remains tantalizingly out of reach in most developed economies—aside from asset prices—yet several central banks are leaning toward launching or stepping up efforts that could slow it down.

What has shifted in recent months is an acceptance that fiscal policy, touted around the turn of the year as the essential comeback kid after the shock election of Donald Trump as US president, has not yet come back, Reuters reported.

Much of this is because of a lack of progress on Trump’s tax cut agenda, dimming down what was called the “Trumpflation” trade in financial markets and now even calling into question a multi-year rally in the US dollar.

But what this does is thrust central bankers—who only six months ago were said to be waning in influence—back into the spotlight. Many seasoned central bank watchers say past experience shows that until inflation really accelerates convincingly, and for a sustained period for reasons other than a rise in the price of oil, the best monetary policy is to be doing nothing.

The latest minutes from the Federal Open Market Committee’s policy discussions show a split over inflation, which is sure to cast unusually sharp focus on Fed Chair Janet Yellen’s testimony to both houses of Congress in the coming week.

Indeed, with the exception of persistent four-decade-low first-time claims for jobless benefits, US economic data has been undercutting relatively modest expectations for the past several months, particularly on measures of inflation.

Wage inflation across most of the developed world, widely viewed by economists as the most compelling and potent driver of sustained overall price inflation, hasn’t picked up the way central bankers have predicted it would either.

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