Howard Schneider, William Schomberg

(Reuters] – On Wednesday the U.S. Federal Reserve made it clear that raging inflation is the biggest threat to its economy and not potential economic harm from Omicron’s rapid-spreading variant.

New forecasts by policymakers suggested as much as three interest rate rises in the next year. The Fed has increased the speed at which it reduces its bond purchases. Jerome Powell, Chair of the Fed, spoke enthusiastically about America’s strong job market.

Powell stated that the economy does not require increasing levels of support from policymakers at a press conference. I believe we’re making great progress in achieving maximum employment.

However, it will soon become apparent whether the Fed’s peer banks are prepared to follow its lead. This is due to a fast-fire succession of Bank of England, European Central Bank meetings and Bank of Japan.

The BoE, though, is unlikely to make a significant shift in reducing the massive support it provided its economy during the pandemic. It could be the beginning of a turbulent 2022. The Fed will end asset purchases fast and begin to raise interest rates quickly. Other Fed members, however, may not feel as resolute to make such a shift.

Although the BoE might be the most prominent central bank in raising interest rates on Thursday, the United Kingdom has been the scene of friction between Omicron- and target-inflation.

UK coronavirus daily infections have risen to their highest levels since the early days of the pandemic. This has prompted Prime Minister Boris Johnson and opposition lawmakers to enforce new restrictions this week.

Surprising data from Wednesday revealed that consumer price inflation rose at a ten-year high rate, and financial market bets on a Dec rate increase jumped to 60%.

“There is now the real risk of inflation becoming entrenched – especially considering the signs of second-round effects in terms of rising wages, supported by a strong labour market – but this is balanced against the threat to the economic recovery from the new Omicron variant,” said Ellie Henderson, an economist at bank Investec.

Economists and investors aren’t expecting much this week from the BOJ or ECB.

The ECB will likely be the last to adjust policy. The current lively debate is about whether or not to reduce the generous stimulus program. This is a simple warning. It is easy to understand why the bank would prefer not to move too soon. The bank fears that misdirected policy changes could cause years of hard work.

Recovery in the eurozone is not as rapid as other countries. While the euro zone is slowly returning to pre-pandemic levels, it could still take up to two years for the economy to fully recover. Also, debt levels in the bloc are at an all-time high, especially in its south. Any retreat from this level could increase the gap between German and Italian loans, which raises questions about their sustainability.

Because the risks of acting too quickly seem to be far greater than the ones of acting too slowly, the ECB may only take the smallest steps to remove extraordinary stimuli this week. However, they will provide copious support including record low rates for at least the next year.

Japan has largely avoided the global consumer-level inflation crisis that continues to ravage other regions. So, Friday’s BOJ meeting will only discuss a slight reduction in corporate assets purchases.

Although the Fed seems to not be too hard to please, Powell’s and Fed’s agendas seem set for a turbulent 2022. Central bankers will chart their paths to exits at dramatically different rates, but they appear to be on Powell’s side.

“You saw it in his congressional remarks that were more about tightening sooner than it was about worrying about the health of the global economy,” said Vincent Reinhart, chief economist for Dreyfuss & Mellon. Fed and other central bankers are “conveying the impression that they are headed for exits.” Central banking today is all about managing expectations. They don’t want to appear behind the curve.