By Balazs Koranyi, Leika Kihara and David Lawder

(Reuters) – The top officials of policymakers stated on Friday that the world’s largest central banks are expected to intensify their policy-making at vastly differing speeds. This will likely increase market and economic volatility in the coming year.

In recent years, central banks have unleashed unimaginable stimulus to boost growth. However, excessive cash has pushed inflation up to multiple-decade highs in many parts of the globe. This raises concerns that policymakers may be falling behind.

While the U.S. Federal Reserve may lead the charge by hiking rates next week, the Bank of Japan will likely keep its policy extremely loose for the long-term.

“The issue here is that what the Fed does, has implications for the U.S., it has implications for other countries, especially those that have high levels of dollar denominated debt,” IMF Managing Director Kristalina Georgieva said.

According to her, “That could throw coldwater on what for certain countries is already an weak recovery,” she said in a World Economic Forum panel. She also suggested that countries with large amounts of debt need to refinance.

Expectations for faster Fed actions have already raised borrowing costs all over the world. This week, however, 10-year German bond yields briefly entered positive territory. It was the first such move since January 2019.

Georgieva stressed that the pandemic must be contained and vaccination rates should be boosted to close the growing gap between poor and rich countries and ensure growth in the future. She stated that the world needs to spend billions to stop COVID to achieve trillions of dollars in production.

Inflation’s rates are now very different around the globe, which can lead to social tension and political tension. As the prices of daily consumer goods, from fuel to food, rise, the problem is inflation.

The U.S. has seen inflation rise to 7.0%. This is the highest level since 1982. It seems stubborn and policy makers are abandoning the notion that this spike was temporary. The eurozone’s price growth has been at 5.0% and will be below 2% by year end, while Japan is at 0.6%.

VARYING SPEEDS

There is one major difference: the U.S. recovery has advanced to the point where there are wage increases and labour market stress that others have not experienced.

Christine Lagarde from the European Central Bank stated that “when I look at our labour market, there aren’t any great resignations and our employment participation figures are getting closer to the prepandemic level.”

She added that “if only these two factors are looked at carefully they are clearly indicating we aren’t moving at the same pace and that we are unlikely experience inflation increases similar to those experienced by the U.S. markets.”

Lagarde stated that the ECB had also begun to move away from its extremely loose policy. They plan on continuing cutting asset acquisitions throughout the year.

Haruhiko Kuroda, Governor of Bank of Japan said that his bank has not yet considered making a move in this direction.

Kuroda explained that Japan is not experiencing high inflation and that they aren’t afraid to infuse. “Unlike in the U.S. or Europe, we have to continue our extremely accommodative, easy monetary policy for the time being.”