{"text":[[{"start":7.44,"text":"As the US and Israel’s war with Iran enters its second month, central banks can no longer just throw their hands in the air and say, “it’s all just too uncertain and complicated”. Even if the US unilaterally declares victory and departs, as each day passes with the Strait of Hormuz closed, it becomes less likely that this will be a short, sharp shock, with energy prices reverting to normal within weeks. The time is ripe, therefore, for central banks to set out a broad plan of action. "}],[{"start":42.629999999999995,"text":"The European Central Bank has shown the way. The easy part for Christine Lagarde, its president, was to pledge to remain agile and guided by the data. More interesting was the three-pronged strategy she outlined. "}],[{"start":57.73,"text":"The ECB would ignore a short energy price shock because it cannot affect oil and gas prices directly and the effects of any monetary policy change would arrive too late, she said; it can adjust rates a little higher if the shock has a similar effect on oil and gas prices as currently predicted by futures markets; and it would be prepared to act forcefully if high inflation showed signs of persisting. Unlike in 2022, the explicit goal is to ensure a rise in inflation will be transitory rather than simply predicting that as the outcome. "}],[{"start":92.21,"text":"By contrast, the Federal Reserve has continued to stress that energy shocks tend to be shortlived and, as chair Jay Powell said this week, the central bank’s policy was in a “good place for us to wait and see how [the war] turns out”. He has previously said the “vast majority” on the Federal Open Market Committee did not see any case for a rate rise. Unlike in Europe, there is little US public planning for an inflationary shock and the Fed’s strategy appears to be to do nothing and hope for the best. "}],[{"start":127.00999999999999,"text":"The Fed might well be proved right in its prediction. The effect of President Donald Trump’s 2025 tariffs on inflation is expected to wane, offsetting higher energy prices. Consumer savings rates are low, making a decline in expenditure more likely. Labour demand is fragile. And the US is facing a smaller energy shock than Europe — American natural gas prices have not risen because export bottlenecks allow the US to maintain a lower domestic price."}],[{"start":160.54999999999998,"text":"The reasons to worry about Fed inaction are also powerful, however. As a net energy exporter, higher prices improve US corporate incomes in aggregate, making the shock significantly less contractionary than on the other side of the Atlantic. This will come on top of a fiscal boost from Trump’s 2025 One Big Beautiful Bill Act, which cuts taxes, and underlying momentum in the US economy is already strong. "}],[{"start":190.04,"text":"There are also few signs as yet that the tariff impact on inflation is subsiding. Producer prices rose at an annual 3.4 per cent rate in February, suggesting inflationary pressure was still bubbling, while import prices, before tariffs were applied, rose 1.3 per cent in February alone. With regular gasoline prices edging above $4 per gallon this week from below $3 a month ago, higher energy prices could easily spark wider inflation and dislodge expectations. US inflation has not been at target for five years. "}],[{"start":228.23,"text":"By refusing to contemplate the possibility of tighter monetary policy in public, the Fed amplifies the danger of an inflationary outcome. Most concerning is that this reticence has come before the change of leadership at the central bank. From the outside, it is impossible to tell the difference between this Fed and one that had been nobbled by Trump."}],[{"start":251.60999999999999,"text":"The president has made his wishes regarding monetary policy plain. He loves low interest rates and does not see rate-setting as a tool to balance demand and supply. The Fed has fought valiantly over the past year to preserve its legal duty to set monetary policy independently of the executive — and in the face of persistent intimidation and threats. It has not caved to the president’s wishes since the war started, but is beginning to look rather tired. "}],[{"start":288.72999999999996,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1775177623_1230.mp3"}