Britain became the first G 7 economy to hike interest rates since the outbreak of the epidemic on Thursday, with the U.S. Federal Reserve signalling plans to tighten in 2022, but the European Central Bank has only slightly reining in stimulus.
The different paths taken by major central banks underline deep uncertainties about how the fast-spreading Omicron variant will hit the global economy and their differing views on an inflation surge that is landing hard in the United States and Britain, but less in Europe and less in Japan.
The risk of uncontrolled prices has taken precedent for the Bank of England and the Fed, but European Central Bank President Christine Lagarde stressed in a news conference that the pandemic was threatening growth and depressing spending in the euro zone.
The current Pandemic has weighed on consumer and business confidence, Lagarde said.
She said that in that environment, we need to maintain flexibility and optionality by withdrawing support step by step, but not commit to a full exit from pandemic support programmes.
The Fed laid out a timetable for interest rate increases on Wednesday to end its pandemic bond-buying by March, and laid out an accelerated timetable for bond-buying by March.
Fed Chair Jerome Powell said that the United States was heading toward strong growth and full employment in 2022 - a far-off prospect for most European labour markets - and that the Fed needed to treat inflation as a more pressing risk.
On Thursday, the Bank of England policymakers raised the benchmark Bank Rate to 0.25 per cent from 0.1 per cent, which was a surprise to economists who had been expecting it to stay on hold. The BoE said inflation was set to hit 6 per cent in April, a three-time increase from the BoE's target level.
The Committee continues to judge that there are two-sided risks around the inflation outlook in the medium term, but that a tightening of monetary policy over the forecast period is likely to be necessary to meet the 2 per cent inflation target, the UK central bank said.
The UK has had daily coronaviruses at their highest level since the earliest days of the epidemic, forcing Prime Minister Boris Johnson to impose new restrictions this week.
A first read-out of the UK Purchasing Managers' Index PMI for December showed that Omicron had already hit British hospitality and travel firms - a day after consumer price inflation hit a decade-high.
The ECB, which has undershot its inflation target for most of the past decade, kept interest rates on hold and announced the end of its emergency asset-buying scheme in March.
The central bank of the euro zone confirmed its relaxed view on inflation, and signalled that any exit from years of ultra-easy policy will be slow, as it promised copious support via its long-running Asset Purchase Programme.
The progress on the economic recovery and towards its medium-term inflation target allows for a step-by-step reduction in the pace of its asset purchases over the coming quarters, the Governing Council said in a statement.
The Bank of Japan is due to announce its policy on Friday. With consumer-level inflation largely absent, a reduction in corporate asset purchases is under discussion at the meeting.
The Fed was doubled the pace at which it will cut bond purchases on Wednesday, while forecasts from its policymakers indicated as many as three interest rate increases next year.
The economy doesn't need more policy support anymore, Powell said at a news conference. We are making a lot of progress toward maximum employment, in my opinion. Powell and the Fed seem to have set the agenda for a tumultuous 2022, as central bankers chart their paths to the exit, albeit at dramatically different paces, even if the others are not hard on its heels.
Vincent Reinhart, chief economist for Dreyfus Mellon, said in his congressional remarks that tightening sooner was more important than worrying about the health of the global economy.
Norway's central bank, which had hiked in September on the back of an economic rebound, went ahead with a rise as expected and said more were likely to follow.
On Thursday, the Swiss National Bank kept its policy rate at - 0.75 per cent, as it kept its ultra-loose stance in place. Swiss inflation, although rising, is still lower than elsewhere at just 1 per cent next year, falling to 0.6 per cent in 2023.
The SNB is keeping its expansionary monetary policy in a statement. It is therefore ensuring price stability and supporting the Swiss economy in its recovery from the coronaviruses epidemic.