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    CPI Report Is Expected to Show Inflation Popped Again

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    Inflation closed out 2021 on a high note, bad news for the Biden White House and for economic policymakers, as rapid price gains erode consumer confidence and cast a shadow of uncertainty over the economy’s future.The Consumer Price Index most likely climbed 7 percent in the year through December, and 5.4 percent after volatile prices such as food and fuel are stripped out, economists in a Bloomberg survey estimated. The last time the main inflation index eclipsed 7 percent was 1982.What to Know About Inflation in the U.S.Inflation, Explained: What is inflation, why is it up and whom does it hurt? We answered some common questions.The Fed’s Pivot: Jerome Powell’s abrupt change of course moved the central bank into inflation-fighting mode.Fastest Inflation in Decades: The Consumer Price Index rose 6.8 percent in November from a year earlier, its sharpest increase since 1982.Why Washington Is Worried: Policymakers are acknowledging that price increases have been proving more persistent than expected.The Psychology of Inflation: Americans are flush with cash and jobs, but they also think the economy is awful.Policymakers have spent months waiting for inflation to fade, hoping that supply chains would catch up with booming consumer demand. Instead, continued waves of coronavirus infections have locked down factories, and shipping routes have struggled to work through extended backlogs as consumers continue to buy goods from overseas at a rapid clip. What happens next may be the biggest economic policy question of 2022.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Jerome Powell Will Acknowledge Inflation’s Toll in Senate Testimony

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    Jerome H. Powell, the Federal Reserve chair whom President Biden has nominated for a second four-year term, is set to tell senators on Tuesday that central bankers will use their economic tools to keep inflation — which has been high — from becoming entrenched.Mr. Powell, who is scheduled to testify before the Senate Banking Committee as he seeks confirmation, faces reappointment at an anxious economic moment. Inflation is running at the fastest pace in nearly 40 years. While economists have hoped for months that it would soon fade, that has yet to happen. Higher prices are chipping away at household incomes, even as wages rise and as companies hire at a solid clip.“We know that high inflation exacts a toll, particularly for those less able to meet the higher costs of essentials like food, housing and transportation,” Mr. Powell will tell lawmakers, according to his prepared remarks. “We are strongly committed to achieving our statutory goals of maximum employment and price stability.”Mr. Powell and his colleagues in recent months have reoriented their policies to pull back on support for the economy in light of the inflationary burst. They are slowing a large bond-buying program they had been using to keep longer-term borrowing cheap and to stoke the economy, and they could raise interest rates as soon as March.“Monetary policy must take a broad and forward-looking view, keeping pace with an ever-evolving economy,” Mr. Powell will tell senators.Economists increasingly expect Fed officials to make three or even four increases this year and eventually to shrink the size of their bond holdings, policies that together will make borrowing more expensive for households and businesses, take juice out of the stock market and slow overall growth.The pivot — which squarely puts the Fed in inflation-fighting mode — could assuage some lawmakers who are worried that the central bank is going to allow inflation to jump out of control. Even so, some may worry what has taken monetary policymakers so long.Others may ask whether the central bank risks overdoing it. Removing support for the economy could slow the job market and curtail hiring while virus concerns and child care issues are keeping many former workers on the labor market’s sidelines.Mr. Powell most likely will also need to address a trading scandal that has rocked the Fed in recent months. Several prominent central bankers traded financial assets for their own portfolios in early 2020, when the Fed was very active in rescuing markets.One, Richard H. Clarida, the vice chair, recently corrected his financial disclosures in a way that made his hot-button transaction — a move into stocks that took place on the eve of a big Fed announcement — look less like the rebalancing that the Fed originally said it had been and more like a response to market conditions.Mr. Clarida announced on Monday that he would resign earlier than planned from the Fed.Mr. Powell did not address that development directly in the prepared remarks, but he pledged to be fair and independent in policy choices.“I am committed to making those decisions with objectivity, integrity and impartiality, based on the best available evidence and in the longstanding tradition of monetary policy independence,” he will say. More

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    Senator Elizabeth Warren Presses Fed for More Information on Officials' Trades

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    Senator Elizabeth Warren, the Massachusetts Democrat, pressed the central bank to provide more information by next Monday.Senator Elizabeth Warren, Democrat of Massachusetts, asked the Federal Reserve in a letter sent Monday to release more information about a series of financial trades that several top officials made in 2020, when the Fed was actively propping up markets.The Fed has become embroiled in a scandal over the transactions, which occurred in the months around its no-holds-barred market rescue at the outset of the pandemic, raising the possibility that policymakers could have financially benefited from the information they held and the decisions they were making. Jerome H. Powell, the Fed chair, has acknowledged that the trades were a problem and acted quickly to overhaul the central bank’s ethics rules.But that has not stemmed the fallout. Mr. Powell, who was nominated for a second term as chair by President Biden, will almost surely face questions about the Fed’s ethics dilemma at his confirmation hearing on Tuesday before the Senate Banking Committee. Ms. Warren, who sits on that committee, is pushing for more details about Fed trading activity and new ethics rules, according to the new letter, which she sent to Mr. Powell. Ms. Warren, who previously requested that the Fed turn over information and documents surrounding the trades, is asking the Fed to “release all available information about the trades” by next Monday.Ms. Warren said in her letter that the central bank had failed to fully respond to her previous requests for information.Ms. Warren, who has criticized Mr. Powell’s tenure as chair, has said she will not support his renomination.Scrutiny of the 2020 trades has intensified after The New York Times reported last week that Richard H. Clarida, the Fed’s vice chair, failed to initially disclose the full extent of his trading in his original financial disclosure. Mr. Clarida amended his disclosures in late December, and the document showed that he had moved out of a stock fund as the markets were plunging during the pandemic. Three days later, he moved back into the same fund, just before Mr. Powell announced that the central bank stood ready to rescue markets.Ethics experts said the new information called into question the central bank’s original explanation that Mr. Clarida’s transaction was a preplanned rebalancing away from bonds and toward stocks, and said more information was needed to understand the trades.The new information “raises suspicions that the Fed may be failing to disclose the full scope of the scandal to the public,” Ms. Warren wrote. “I therefore ask that you respond in full to my request by January 17, 2022.”Mr. Clarida updated his disclosures after noticing “inadvertent errors,” a Fed representative said last week, and the Fed’s ethics officer said the newly noted trades were “in compliance with applicable laws and regulations governing conflicts of interest.” Still, they have drawn scrutiny because the rapid move out of and back into a stock fund at a time of market tumult looked less like a rebalancing toward stocks and more like a possible response to market conditions.“This revelation is just the latest evidence of a deep-rooted ethics failure at the Fed and the urgent need for a comprehensive information release about officials’ trading activity,” Ms. Warren wrote. More

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    A Fed Official’s 2020 Trade Drew Outcry. It Went Further Than First Disclosed.

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    Corrected disclosures show that Vice Chair Richard H. Clarida sold a stock fund, then swiftly repurchased it before a big Fed announcement.Richard H. Clarida, the departing vice chair of the Federal Reserve, failed to initially disclose the extent of a financial transaction he made in early 2020 as the Fed was preparing to swoop in and rescue markets amid the unfolding pandemic.Mr. Clarida previously came under fire for buying shares on Feb. 27 in an investment fund that holds stocks — one day before the Fed chair, Jerome H. Powell, announced that the central bank stood ready to help the economy as the pandemic set in. The transaction drew an outcry from lawmakers and watchdog groups because it put Mr. Clarida in a position to benefit as the Fed restored market confidence.Mr. Clarida’s recently amended financial disclosure showed that the vice chair sold that same stock fund on Feb. 24, at a moment when financial markets were plunging amid fears of the virus.The Fed initially described the Feb. 27 transaction as a previously planned move by Mr. Clarida away from bonds and into stocks, the type of “rebalancing” investors often do when they want to take on more risk and earn higher returns over time. But the rapid move out of stocks and then back in makes it look less like a planned, long-term financial maneuver and more like a response to market conditions.“It undermines the claim that this was portfolio rebalancing,” said Peter Conti-Brown, a Fed historian at the University of Pennsylvania. “This is deeply problematic.”The Fed did not provide further explanation of Mr. Clarida’s trade when asked why he had sold and bought in quick succession. Asked if the Fed stood by previous indications that the move was a rebalancing, a spokesperson did not comment.The correction to the disclosures was released late last month and came after Mr. Clarida noticed “inadvertent errors” in his initial filings, a Fed spokesperson said, noting that the holdings were in broad funds (as opposed to investing in individual stocks). Mr. Clarida did not comment for this article.The extent of Mr. Clarida’s transaction is the latest development in a monthslong trading scandal that has embroiled top Fed officials and prompted high-profile departures at the usually staid central bank.Financial disclosures released in late 2021 showed that Robert S. Kaplan, the former Federal Reserve Bank of Dallas president, had made big individual-stock trades, while Eric S. Rosengren, the Boston Fed president, had traded in real estate securities. Those moves drew immediate and intense backlash from lawmakers, ethics experts and former Fed employees alike.That’s because Fed officials were actively rescuing a broad swath of markets in 2020: In March and April, they slashed rates to zero, bought mortgage-tied and government bonds in mass quantities, and rolled out rescue programs for corporate and municipal debt. Continuing to trade in affected securities for their own portfolios throughout the year could have given them room to profit from their privileged knowledge. At a minimum, it created an appearance problem, one that Mr. Powell himself has acknowledged.Mr. Kaplan resigned in September, citing the scandal; Mr. Rosengren resigned simultaneously, citing health issues. Mr. Clarida’s term ends at the close of this month, which it was scheduled to do before news of the scandal broke.Mr. Clarida’s trades, which Bloomberg reported earlier, also raised eyebrows among lawmakers, including Senator Elizabeth Warren of Massachusetts, who has demanded a Securities and Exchange Commission investigation into Fed officials’ 2020 trading. But many ethics experts had seen the transaction as more benign, if poorly timed, because it happened in a broad-based index and the Fed had said it was part of a planned and longer-term investment strategy.The new disclosure casts doubt on that explanation, given that Mr. Clarida sold out of stocks just days before moving back into them.“It’s peculiar,” said Norman Eisen, an ethics official in the Obama White House who said he probably would not have approved such a trade. “It’s fair to ask — in what respect does this constitute a rebalancing?”It is unclear whether Mr. Clarida benefited financially from the trade, but it was most likely a lucrative move. By selling the stock fund as its value began to plummet and buying it back days later when the price per share was lower, Mr. Clarida would have ended up holding more shares, assuming he reinvested all of the money that he had withdrawn. The financial disclosures put both transactions in a range of $1 million to $5 million.The sale-and-purchase move would have made money within a few days, as stock markets and the fund in question increased in value after Mr. Powell’s announcement. The investment would have then lost money as stocks sank again amid the deepening pandemic crisis.But the fund’s value recovered after the Fed’s extensive interventions in markets. Assuming they were held, the holdings would ultimately have appreciated in value and turned a bigger profit than they would have had Mr. Clarida merely held the original investment without selling or buying.The Fed was aware of the reputational risk around trading as the pandemic kicked into high gear — the Board of Governors’ ethics office sent an email in late March 2020 encouraging officials to hold off on personal trades — but notable transactions happened in late February and again as early as May in spite of that, its officials’ disclosures suggest.Mr. Powell has acknowledged the optics and ethics problem the trading created, saying that “no one is happy” to “have these questions raised.” He and his colleagues moved quickly to overhaul the Fed’s trading-related rules after the revelations, releasing new and stricter ethics standards that will force officials to trade less rapidly while banning many types of investment.The individuals in question also faced censure. They are under independent investigation to see if their transactions were legal and consistent with internal central bank rules. The S.E.C. declined to comment on whether it has opened or will open an investigation into Mr. Clarida’s trades and his colleagues’, as Ms. Warren had requested.While the officials who came under the most scrutiny for their trades have left or will leave soon, the new disclosure could cause problems for the Fed’s remaining leaders — including Mr. Powell, whom President Biden recently renominated to a second term as chair.Mr. Powell will appear before the Senate Banking Committee next week for his confirmation hearing, as will Lael Brainard, a Fed governor, whom Mr. Biden nominated to replace Mr. Clarida as vice chair.Both could face sticky questions about why a Fed culture permissive of trading at activist moments was, until recently, allowed to prevail. Mr. Powell led the organization, while Ms. Brainard headed the committee in charge of reserve bank oversight.Jerome H. Powell and his colleagues moved quickly to overhaul the Fed’s trading-related rules after the revelations.Stefani Reynolds for The New York TimesThe trading scandal has also resurfaced longstanding concerns about whether the Fed is too cozy with Wall Street, and whether its officials are working for the public or to profit from their own actions.If he is asked about the scandal, Mr. Powell is likely to point to the tougher ethics guidelines that the Fed unveiled in October. Mr. Clarida’s apparently rapid transaction would most likely have been trickier under the new rules, which require officials to give 45 days’ notice before buying an asset, and which prevent trading during tumultuous market periods.The updated disclosures do show that Mr. Clarida was “in compliance with applicable laws and regulations governing conflicts of interest,” based on the Fed ethics officer’s assessment. But that alone is unlikely to prevent scrutiny.Regardless of legality, “the public would be concerned if it turned out that he bought shares of the fund before a major announcement by the Federal Reserve potentially affecting the value of his shares,” Walter Shaub, a former government ethics official now at the Project on Government Oversight, said in an email.Mr. Shaub said more information was needed to know if the trade was problematic, including whether Mr. Clarida knew the Feb. 28 announcement was coming — and when he knew that.The Fed previously told Bloomberg that Mr. Clarida was not yet involved in deliberations about the coronavirus response at the time of the trade.But Mr. Clarida was in close touch with his colleagues throughout that week. He had a call with a board member and a regional Fed president on Feb. 26, his calendars show. That is the way the Fed typically lists meetings of the Fed chair, vice chair and New York Fed president — the Fed’s so-called troika, which sets the agenda for central bank policy — on its largely anonymized official calendars.Mr. Conti-Brown said that regardless of how much Mr. Clarida knew about his colleagues’ plans, the February trades were an issue that the Fed needed to explain in detail.“Richard Clarida is a decision maker,” he said. “The deliberations that happen within his brain are what matter here.” More

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    PCE Index Probably Popped Again in November

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    Federal Reserve policymakers are likely to finish a year that has been colored by surprisingly high inflation with yet more bad news: Their preferred price measure could touch its highest level since 1982 when the latest reading is published on Thursday morning.The Personal Consumption Expenditures price index, which is the indicator that the Fed officially targets when it aims for 2 percent annual inflation on average over time, is expected to have climbed by 5.7 percent in November from a year earlier, economists surveyed by Bloomberg estimate. That would be the fastest pace of increase in nearly 40 years.Part of the jump will be caused by gasoline prices, which were up sharply in November, and have moderated this month. But a so-called “core” index that excludes food and fuel prices is also expected to increase sharply, to 4.5 percent.Rapidly rising prices are lasting longer than policymakers had hoped, and they have become broader in recent months. Earlier this year, big price increases were largely limited to goods that were in short supply as demand surged and as overtaxed shipping lines struggled to keep up. More recently, they have spread into categories like rent — which can be more long-lasting.Fed officials are tasked with keeping inflation moderate and helping the country achieve full employment, and they have grown increasingly worried about the surge in prices. This month they pivoted on policy, speeding up plans to cut back on economic support and preparing to raise interest rates early next year if that proves necessary. Higher interest rates can weaken demand for everything from homes to cars, helping to slow down the economy and restrain inflation.What to Know About Inflation in the U.S.Inflation, Explained: What is inflation, why is it up and whom does it hurt? We answered some common questions.The Fed’s Pivot: Jerome Powell’s abrupt change of course moved the central bank into inflation-fighting mode.Fastest Inflation in Decades: The Consumer Price Index rose 6.8 percent in November from a year earlier, its sharpest increase since 1982.Why Washington Is Worried: Policymakers are acknowledging that price increases have been proving more persistent than expected.The Psychology of Inflation: Americans are flush with cash and jobs, but they also think the economy is awful.The big question for officials at the central bank — and in the Biden administration — is what will come next. With the Omicron variant of the coronavirus surging around the world, it is unlikely that tangled supply chains will get back to normal quickly. At the same time, rising housing costs could keep inflation high even as some of the most painful trends of 2021, including a surge in used-car prices tied to a computer chip shortage, moderate.Fed officials do expect inflation to ease to 2.6 percent by the end of next year, their most recent economic forecasts showed, but that would remain substantially above their 2 percent goal. None of the Fed’s 18 top officials expect inflation to drop below 2 percent next year. High inflation also is sapping consumer confidence as people face down rising costs, even at a time when job openings far exceed available workers and wages are rising.“It’s a devastating thing for people who are working class and middle-class,” President Biden said at the White House on Tuesday, adding: “It really hurts.”The administration is trying to pull what levers it can — increasing the supply of oil and gas and trying to keep ports open longer in an effort to clear shipping backlogs.But costs also are increasing because households have saved a lot after repeated government stimulus checks and months locked at home. People are spending voraciously, giving companies the power to raise prices without losing customers.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Lingering Virus, Lasting Inflation: A Fed Official Explains Her Pivot

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    Mary Daly, president of the Federal Reserve Bank of San Francisco, wanted to withdraw economic help slowly. Now, she might support a rate increase as soon as March.SAN FRANCISCO — Mary C. Daly was in line behind a woman in her neighborhood Walgreens in Oakland, Calif., this fall when she witnessed an upsetting consequence of inflation. The shopper, who was older, was shuffling uncomfortably as the clerk rang up her items.“She starts ruffling in her pockets, and in her purse,” Ms. Daly said in an interview. “And she says: This is a lot more expensive than it usually is. I buy these things — these are my monthly purchases.”The woman had to put something back — she chose potato chips — because she couldn’t afford everything in her basket.It would have been sobering to watch for anyone, but the moment hit especially hard for Ms. Daly, who is president of the Federal Reserve Bank of San Francisco. As one of the Fed’s 18 top officials, she is one of the people who sets economic policy to help to ensure a strong job market and to keep prices for goods and services stable.Like many of her colleagues, Ms. Daly initially expected inflation to fade relatively quickly in 2021 as the economy reopened and got back to normal. But continued waves of virus that have interrupted and complicated the recovery and increasingly broad price increases have made central bankers nervous that rapid inflation and pandemic-caused labor shortages might linger.Those risks have prompted the Fed to speed up its plans to pull back policies meant to stimulate the economy. Officials had previously suggested that they would keep interest rates low for a long time to allow more people who lost or quit their jobs during the pandemic to return to the job market. But in recent weeks, they announced a plan to more rapidly scale back their other main policy to boost the economy — large-scale bond purchases that have kept long-term borrowing costs low and kept money flowing around the financial system. Concluding that program promptly could put them in position to raise interest rates as soon as March.Ms. Daly, who spoke to The New York Times in two interviews in November and December, has shifted her tone particularly dramatically in recent weeks. How she came to change her mind highlights how policymakers have been caught off guard by the persistence of high inflation and are now struggling to strike the right balance between addressing it while not harming the labor market.As recently as mid-November, she had argued that the Fed should be patient in removing its support, avoiding an overreaction to inflation that might prove temporary and risk unnecessarily slowing the recovery of the labor market. But incoming data have confirmed that employers are still struggling to hire even as consumer prices are rising at the fastest clip in nearly 40 years. Rising rents and tangled supply chains could continue to push up inflation. And she’s running into more people like that woman in Walgreens.“My community members are telling me they’re worried about inflation,” Ms. Daly said last week. “What influenced me quite a lot was recognizing that the very communities we’re trying to serve when we talk about people sidelined” from the labor market “are the very communities that are paying the largest toll of rising food prices, transportation prices and housing prices.”Ms. Daly said she supported ending bond buying quickly so that officials were in a position to begin raising interest rates. A higher Fed policy rate would percolate through the economy, lifting the costs of mortgages, car loans and even credit cards and cooling off consumer and business demand. That would eventually tamp down inflation, while also likely slowing job growth.Ms. Daly said it was too early to know when the first rate increase would be warranted, but suggested she could be open to having the Fed begin raising rates as soon as March.“I’m comfortable with saying that I expect us to need to raise rates next year,” Ms. Daly said last week. “But exactly how many will it be — two or three — and when will that be — March, June, or in the fall? For me it’s just too early to know, and I don’t see the advantage of a declaration.”Many investors and economists now expect the Fed to lift rates from their current near-zero level in March, and Christopher Waller, a Fed governor, suggested last week that he could support a move then.That higher rates could be coming so soon is a big change from what officials were signaling — and what people who watch the Fed closely were expecting — until very recently.Fed officials have long said they want the economy to return to full employment before they lift interest rates. Early in the pandemic, many policymakers suggested that they would like to see the number of people with jobs rebound to levels approaching those that prevailed in early 2020, suggesting a long period of low rates would be needed.But increasingly, officials have argued that the economy is close to achieving their employment target by focusing on the overall unemployment rate and the rates for different racial groups.The jobless rate has fallen to 4.2 percent, and Fed officials expect it to drop to 3.5 percent next year. That would match the rate that prevailed before the pandemic, and would be a marked improvement from a pandemic high of 14.8 percent in April 2020. Black unemployment is dropping swiftly, too.“The economy has been making rapid progress toward maximum employment,” Jerome H. Powell, the Fed chair, said during a news conference this month.Yet that unemployment rate tells just part of the story, because it counts only people who are actively applying for jobs. The share of people in their prime employment ages, between 25 and 54, who are either working or looking for work has dropped notably, and is only starting to recover. Ms. Daly said she was thinking about the Fed’s full employment target in terms of what is achievable in the short term, as the coronavirus keeps many workers at home, and in the longer term, when more employees may be able to return because the virus is more under control.“There’s the labor market we can get eventually, after Covid,” she said. “And there’s the labor market that we have to deal with today.”For now, job openings far exceed the number of people applying for positions, and wages are climbing briskly, two signs that suggest that workers are — at least temporarily — scarce.It may be the case that “in the short run, this is all the workers we have,” Ms. Daly said. “But in the long run, we expect more workers to come.”Retailers in her area are cutting hours on busy shopping days because they can’t hire enough staff. Production lines are shuttered. And with virus infections rising again and the new Omicron variant spreading rapidly, there is no immediate end in sight.“If we get past Covid, inflation comes down, the labor supply recovers — then definitely we want more patience, because we want time for that to work itself through,” she said. “But we have Covid, and it won’t go away.” More

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    Omicron Is an Economic Threat, but Inflation Is Worse, Central Bankers Say

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    Within 24 hours, the Federal Reserve, Bank of England and European Central Bank all stepped forward to deal with price increases.There is still a lot scientists do not know about Omicron. There is cautious optimism — but no certainty — about the effectiveness of vaccines against this fast-spreading variant of the coronavirus, and experts do not fully understand what it means for public health or the economy.But central banks have concluded they don’t have the luxury of waiting to find out.Facing surging inflation, three of the world’s most influential central banks — the Federal Reserve, Bank of England and European Central Bank — took decisive steps within 24 hours of each other to look past Omicron’s economic uncertainty. On Thursday, Britain’s central bank unexpectedly raised interest rates for the first time in more than three years as a way to curb inflation that has reached a 10-year high. The eurozone’s central bank confirmed it would stop purchases under a bond-buying program in March. The day before, the Fed projected three interest rate increases next year and said it would accelerate the wind down its own bond-buying program.The perception that the Bank of England would “view the outbreak of the Omicron variant with greater concern than it actually did” caused the surprise in financial markets, ” Philip Shaw, an economist at Investec in London, wrote in a note to clients. The Fed also “carried on regardless” with its tightening plans, he added.Aside from Omicron, the central banks were running out of reasons to continue emergency levels of monetary stimulus designed to keep money flowing through financial markets and to keep lending to businesses and households robust throughout the pandemic. The drastic measures of the past two years had done the job — and then some: Inflation is at a nearly 40-year high in the United States; in the eurozone it is the highest since records began in 1997; and price rises in Britain have consistently exceeded expectations.It is still unknown how Omicron will affect the economic recovery. Vaccine makers are still testing their shots against the variant.Alessandro Grassani for The New York TimesThe heads of all three central banks have separately decided that the price gains won’t be as temporary as they once thought, as supply chains take a while to untangle and energy prices pick up again.Andrew Bailey, the governor of the Bank of England, said that policymakers in Britain were seeing things that could threaten inflation in the medium-term. “So that’s why we have to act,” he said on Thursday.“We don’t know, of course, a lot about Omicron at the moment,” he added. It could slow the economy, and already there are canceled holiday parties, fewer restaurant bookings, less retail foot traffic and signs that more people are staying home. But Omicron could also worsen inflationary pressures, he said. “And that’s, I’m afraid, a very important factor for us.”Already, price gains have popped higher this year as snarled supply chains and goods shortages have raised shipping and manufacturing costs. Depending on the severity of Omicron and how governments react, the variant could cause factories to shut down and could keep supply chains in disarray and workers at home, prolonging goods and labor shortages and pushing inflation higher.At the same time, policymakers are assuming the impact on the economy will be milder than previous waves of the virus. With each surge in cases and reintroduction of restrictions, the dent to the economy has gotten smaller and smaller. This would lessen the risk that the central banks end up tightening monetary policy into a downturn.Still, it is an awkward balancing act. On the same day the Bank of England raised rates, its staff cut half a percentage point from their growth forecasts for the final three months of the year. By the end of 2021, the British economy will still be 1.5 percent smaller than its prepandemic size, the bank estimated.Christine Lagarde, the president of the European Central Bank, said Omicron had created uncertainty in the face of a strong recovery.Pool photo by Ronald Wittek“From a macroeconomic perspective, it’s unlikely that the fourth wave is going to have as meaningful an impact as we’ve seen even during last winter,” said Dean Turner, an economist at UBS Global Wealth Management.The economic recoveries from the pandemic, though bumpy, haven’t been derailed yet. Unemployment rates are falling in Europe and the United States, and businesses are complaining that is difficult to hire staff. That, combined with the burst of inflation, was enough to bolster the case for some monetary tightening.“There’s a lot of uncertainty with the new variant, and it’s not clear how big the effects would be on either inflation or growth or hiring,” Jerome H. Powell, the Fed chair, said on Wednesday. But there is a “real risk” inflation could be more persistent, he also said, which was part of the reason the bank sped up its plans to taper its bond purchases.Ending the Fed’s bond purchases sooner would give the central bank room to react to a wider range of economic outcomes next year, Mr. Powell said.“The data is pretty glaring,” Mr. Turner of UBS said of recent statistics on inflation and employment. “There’s only so much caution you can get away with,” before central banks need to take action, he said.Omicron has created uncertainty in the face of a strong recovery, Christine Lagarde, the president of the European Central Bank said on Thursday after she outlined how the bank would end its largest pandemic-era stimulus measure.Vaccine-makers are still testing their shots against Omicron and medical officials are encouraging restraint when it comes to socializing rather than implementing new lockdowns, but central bankers are marching ahead because time isn’t on their side. The effect of monetary policy decisions on the wider economy isn’t immediate.The Bank of England is forecasting that inflation will peak at 6 percent in April, three times the central bank’s target. Within such a short time frame, there is little policymakers can do to stop that from happening, but they can try to signal to businesses and unions setting wages that they will act to stop higher inflation from becoming entrenched, said Paul Mortimer-Lee, the deputy director of the National Institute of Economic and Social Research in London. This may prevent higher prices from spilling over into significantly higher wages, which could cause businesses to raise prices even more.While all three central banks are facing similar problems with high inflation and are keeping watch over wage negotiations, their future challenges are different.The Federal Reserve and Bank of England are worried about the persistence of high inflation. For the European Central Bank, inflation in the medium term is too low, not too high. It is still forecasting inflation to be below its 2 percent target in 2023 and 2024. To help reach that target in coming years, the central bank will increase the size of an older bond-buying program beginning in April, after purchases end in the larger, pandemic-era program. This is to avoid “a brutal transition,” Ms. Lagarde said.She warned against drawing strong comparisons between Britain, the United States and the eurozone economies.“Those three economies are at a completely different states of the cycle,” she said. “We are in a different universe and environment,” even though there might be some spillover effects across countries from the actions each central bank takes.Melissa Eddy More