Global central banks are indicating that they are likely to become more cautious in their policies given the ongoing inflation pressures even after they have hiked rates in the recent past. This shift in tone is coming at a time when the policymakers are struggling to control inflation without derailing the economy growth.

The Federal Reserve in the minutes of its latest policy meeting stated that while inflation has eased from its recent highs it is still above the central banks preferred level of 2%. The officials also worried that inflation may become persistent and stressed that the future rate decisions should be made with ‘patience and flexibility’.

From the minutes, it is clear that the Fed is expected to continue with higher interest rates for a longer period than previously expected and the possibility of more rate hikes cannot be ruled out either.

Likewise, the European Central Bank (ECB) has also shifted its tone with the ECB President Christine Lagarde saying that ‘it is too early to declare victory’ on inflation. ECB’s recent economic forecasts indicate that inflation will continue to be above the target until 2025, which makes the bank to indicate that the rates will be high for a long time. This has resulted in the appreciation of the euro against major currencies because investors are factoring in a long period of higher interest rates in the euro zone.

In the United Kingdom, for instance, the Bank of England is in a rather complicated position because inflation remains at 4%, which is twice the target level. The Bank of England Governor, Andrew Bailey, has said that the bank might have to keep the interest rates higher for a longer period to tame inflation despite the risks it poses to the growth of the economy and the housing market.

The Bank of Japan, which has been an exception to the global trend of tightening the monetary policy, is also displaying some inclination towards a change. Some of the board members have recently provided cues that the bank might be planning to abandon negative interest rates in the next few months which is a big shift that can affect the entire financial market of the world.

Central banks of emerging markets are not without their own problems. Some have had to keep higher interest rates to defend their currencies and fight imported inflation despite the adverse effect on the economic growth. For instance, Brazil’s central bank has maintained the policy rate at 11, 4. 1 and 4. 2 percent. 25% even as governments urged people to reduce their spending in order to boost the economy.

Central banks’ actions are being felt in the financial markets with most of them adopting a cautious stance. Yields on bonds have gone up in the past few weeks due to changes in investor’s expectations of future interest rates. The 10-year U. S. Treasury note yield, which is considered as a reference point for the cost of borrowing across the world, has increased to 4. 3 percent, the highest level in months.

Stock markets have become more volatile with investors trying to understand the consequences of persistent rising interest rates. Growth stocks especially in technology sector have come under selling pressure due to rising interest rates as future earnings become less valuable in the present value terms.

The concerns over inflation have also been a persistent issue, which is also affecting the corporate policy. Numerous firms are citing that they are still facing challenges in passing on the increased costs to the consumers and thus, margins are being squeezed. This has resulted to higher emphasis on cutting down on costs as well as enhancing efficiency in the various sectors of the economy.

Central banks have continued to pay a lot of attention to labor markets. However, the labor market conditions have softened slightly in some countries, wage increases continue to be strong in many other countries, thus fuelling inflation. Policy makers are paying particular attention to wage developments to check for signs of a wage-price spiral that could lead to increase in inflation.

In this environment, there is a rising discussion among economists concerning the correct approach to the conflict between inflation control and economic growth. Critics have accused central banks of overdoing it and risking more harm to the economy than is necessary while the supporters of the policy say that the danger of high inflation remains high and calls for a strict monetary policy.

The next few months will be critical in deciding whether the central banks’ move to tame inflation without causing a worldwide recession will work. As the data keeps on coming in and the policies are being reviewed, businesses and investors will have to be prepared for a dynamic economic environment.