Central Banks Struggle with Rising Inflation and Slowing Growth

Central banks are facing a dilemma as inflation rates rise but growth slows. The US Federal Reserve, Bank of England, and European Central Bank (ECB) are under pressure to raise interest rates to combat inflationary pressures.

The Fed's new boss, Kevin Warsh, has instigated an all-embracing review of the Fed's operations, led by 15 outsiders who are among the most eminent experts and economists. Mohamed El-Erian, a professor at Wharton Business School, praises Warsh for recognizing that central bank forecasting has been undermined by a series of inflation shocks.

The Bank of England (BoE) is also under pressure to raise interest rates, but its decision to hold the Bank Rate steady this year could be challenged. The UK consumer price index dropped to 2.6% in June, and some analysts expect it to rise to 2.9% or 3% when July's figures are published.

The ECB has raised interest rates this year but critics say it moved too quickly. While the eurozone's central bank has freed itself from forward guidance, it remains unclear how it will react when inflation begins to climb.