Former Indian Central Bank Governor Raghuram Rajan highlighted the tightrope that policymakers have to walk with monetary stimulus, warning that one false move may lead to a global “wealth shock” that could scare consumers.

As the cost to live is increasing in many parts of the globe, central banks are likely to reduce the amount they buy bonds and raise rates to manage inflation.

After the financial fallout, the U.S. Federal Reserve began to normalize its policy coronavirus pandemic. Last week, it said that bonds purchases will begin to taper “later in the month”, and that prices had risen faster and more enduringly than central banks had predicted.

Rajan who was the head of India’s Reserve Bank of India from 2013 to 2016, stated that this accommodating policy by central banks had created bubble-like conditions with certain assets. He also said that inflation had “more than just transitory.”

One of the difficulties of course… If the central banks move to fast and the markets adjust too rapidly then you have a massive wealth shock in your economy that frightens customers and can trigger the recession you did not want.” He spoke Wednesday at the UBS Euro Conference.

He said that central banks should be cautious, and warned policymakers against doing nothing.

They wait longer [to normalize policy]Rajan explained that the more this type of belief is fed on itself, and there’s a belief central banks won’t move rates for very long, then it will continue to feed off itself.”

Worst is the belief that central banks are in control of markets. They will return with a more accommodative policy if things fall apart. If that is the case, then central banks could be trapped by markets.

The Fed last week voted against raising interest rates above their anchor close to zero and cautioned against anticipating rate increases. But, the U.S. central banks did not hesitate to use controversial words like “transitory”, which refers to inflation.

— CNBC’s Jeff Cox contributed to this article.