Last week, the Bank of England Museum hosted a “Festival of Mistakes,” highlighting notable financial blunders and panics of the past.

The agenda failed to include central banks’ monumental boo-boo the world is wrestling with now: their failure to recognize inflation as an imminent danger and take action to head it off. 

The current round of inflation became noticeable in January 2021, when the rate of price increases in Europe moved from fractions of a percent to more than 1 percent.

In April 2021, the U.S. pace of inflation almost doubled, jumping to 4.2 percent from a 2.6-percent pace in March. 

For months after, the European Central Bank (ECB) and U.S. Federal Reserve sat still, telling the world that inflation was a temporary blip caused by post-COVID supply chain disruptions.

They failed to account for government stimulus payments to individuals; low-interest, forgivable loans to businesses; and rock-bottom interest rates—negative in Europe until July 2022—flooding the world with cash in a global economy short of goods, a textbook recipe for inflation.

Fed officials waited for the jobs market to right itself, ignoring the need to fight relentlessly rising prices, then insisted inflation would fall like a stone if left on its own.

The Fed’s insistence that soaring inflation was “transitory” was “one of the worst calls in decades,” Mohamed El-Erian, president of Queens College, Cambridge, and a senior advisor to Allianz, said in comments quoted by the Financial Times.

If the Fed had grasped the consequences of keeping interest rates low amid a cash-rich economy with too few goods available, it would have been able to recognize inflation’s dangers early on, he added.

The ECB’s governing council and its counterpart at the Bank of England (BoE) also held too long to their belief that inflation would not rise much, then taper away by itself.

“The failure to spot inflation has not only left central bankers risking financial instability by having to raise rates far faster than usual, but threatened the credibility of institutions that rely on trust to steer the economy toward sustainable growth,” the FT said.

When a $60 grocery bill becomes $80 and then $90 while central bankers use words like “temporary” and “transitory” to describe relentlessly rising prices, people see that “the central bank is now talking nonsense,” Stephen King, senior economic advisor to HSBC bank, told the FT.

At that point, people disregard the banksters’ assurances, he added, and focus on their own and turn their attention instead to their own experiences.

As a result, central banks have had to try to reclaim their credibility by jacking interest rates further and faster than is prudent in order to prove they are serious about wrestling down inflation.

The ECB has apologized for bungling its response to inflation and has vowed to focus on it until prices have been tamed. Fed chair Jerome Powell and other Fed officials have issued vague regrets about past errors in judgment.

In contrast, the BoE maintains that inflation in the U.K. was caused by supply chain clogs, the Ukraine war and Western sanctions sending energy costs out of control, and other events over which it had no control. 

Richard Hughes, head of the U.K.’s independent Office of Budget Responsibility, acknowledged that the BoE’s failure to see where inflation was going is “one of two big macro forecasting errors” in recent decades, but added that forecasts represent “the best understanding of the future, conditioned on your knowledge of the present.”

TRENDPOST: As we noted in “The Powell Push: For Better or Worse” (7 Dec 2021), Fed chair Jerome Powell is either a dumb economist or a liar. We had long forecast rising inflation. But at his December 2020 press conference, the Fed-Head Powell pointed to “disinflationary pressures around the globe” and said “it’s not going to be easy to have inflation move up.”

A month later, with inflation on the move well above the Fed’s 2-percent target rate, Powell said it was only “temporary.”

In July, with inflation running at 5 percent, Powell told a Congressional committee that “we really do believe that these things will come down of their own accord as the economy reopens,” he noted. 

Wrong, wrong, and wrong.

As we noted in “Fed: Stronger Economy, Steady Rates” (23 Mar 2021), Fed officials predicted overall U.S. inflation this year would be 2.4 percent.

Instead, it topped 6 percent in October and has averaged 4.1 percent from January through October.

Until November, Powell and the Fed’s Open Market Committee were referring to inflation as “temporary,” which became “transitory,” a more useful weasel word as what Powell had called “temporary” stretched into its 10th month.

In his testimony last week, Powell admitted it is “probably a good time to retire” the Fed’s characterization of inflation as transitory.

In fact, considering his inaccuracy, it is “probably a time to retire” Powell, but staying on his losing streak, two weeks ago President Biden reappointed Powell for another term as Fed-Head of the Bankster Bandits.

Indeed, The Fed’s credibility has become another casualty of the COVID War.

Like the U.S. Federal Reserve, the ECB waited a year too long to raise rates. Christine Lagarde, the former head of the International Monetary Fund (aka International Mafia Association) and now the leader of the European Central Bank bullshitted for two years that inflation was not rising and the ECB could keep interest rates in negative territory and keep buying up corporate and government bonds.

An outright scam, as with the United States and other nations, so these Banksters could give a reason to keep pumping cheap money into equities to artificially prop up economies decimated by politicians that lockdown economies to fight the COVID War.

Last November, while we had long forecast surging inflation, Lagarde said she didn’t see it coming and it would be “wrong” to raise interest rates now because inflation will begin to cool by the time the new rates would have a chance to impact the economy.

On 3 December 2021, she told the Financial Times that inflation was peaking and that the inflation profile looked “like a hump…and a hump eventually declines.” She said at the time that the ECB is “very unlikely” to alter its interest rate—which has remained negative for seven years—in 2022.

Now, as the central bank is scrambling to catch up with inflation, the Eurozone is sinking deeper into Dragflation, our Top 2022 Trend defined by rising prices and shrinking economic productivity. 

The energy crisis created by the Ukraine war and Western sanctions will prolong not only inflation, but also the continent’s recession, realizing the ECB’s fears that inflation will become embedded across the economy.

Skip to content