Ben Bernanke, who led the Federal Reserve during the global financial crisis, observed that the art of setting monetary policy was 98% talk and 2% action.
A significant rebalancing of that equation would be welcome after communications upheavals this week roiled markets and seemed to reveal a high degree of anxiety among central bankers. While Fed Chair Jerome Powell pledged to conquer inflation, and effectively conceded a recession may be the price for doing so, the process of getting to that point was messy.
Officials in economies big and small are facing a similar dilemma. Quashing inflation without inducing a severe slowdown is a tricky task in the best of times ¡ª and this is far from an ideal moment. Inflation has proven more pernicious than projected. Where policy makers are really tripping up is in signaling, or flat-out stating, what their next moves will be well in advance. Central banks then find themselves scrambling at the last minute to reset expectations ¡ª that they themselves created ¡ª when inflation isn¡¯t behaving. No wonder markets are unnerved. Have central banks inadvertently created a beast that they now can¡¯t really control?
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