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In a recorded lecture published Friday, Haldane noted that there were both upside and downside risks to the inflation outlook, but cautioned that an inflationary “tiger” had awoken.
“The combined effects of unprecedentedly large shocks, and unprecedentedly high degrees of policy support, have stirred it from its slumber. In this environment, the tiger-taming act facing central banks is a difficult and dangerous one,” Haldane said.
Global markets have been jittery over the past week due to a spike in the U.S. 10-year Treasury yield, driven in part by rising expectations for inflation and economic growth as Covid-19 vaccines are rolled out and pent up consumer demand is potentially unleashed.
Earlier this week, U.S. Federal Reserve Chairman Jerome Powell sought to temper concerns that the Fed would tighten monetary policy conditions in the face of rising inflation. Powell vowed it would maintain its unprecedented accommodative stance, adopted in order to usher the economy out of the coronavirus crisis, projecting that inflation and employment would remain below target.
“But, for me, there is a tangible risk inflation proves more difficult to tame, requiring monetary policymakers to act more assertively than is currently priced into financial markets,” he said.
“People are right to caution about the risks of central banks acting too conservatively by tightening policy prematurely. But, for me, the greater risk at present is of central bank complacency allowing the inflationary (big) cat out of the bag.”
Read More: Bank of England’s Haldane warns on inflation; bond yields move higher