You are quite right to argue that if the US Federal Reserve delays cutting interest rates, so will other central banks (Report, April 29). But whether they are right to do so is an entirely different matter.
As so often in economics, what matters is not so much what happens but why. A postponement of interest rate reductions by the Fed can have two effects. If persistent inflation in the US reflects global economic inflation pressures being stronger than previously anticipated, then inflation will be slower to recede also outside the US. Consequently, the European Central Bank and other central banks should also delay cutting interest rates.
But if the inflation pressures are localised to the US economy, then they warrant quicker interest rate cuts by central banks outside the US. The reason is that higher US interest rates and the resulting tighter financial conditions in US capital markets will spread across the world and lower inflation pressures.
That distinction was not lost on the Swiss National Bank which in its usual sure-footed way cut interest rates in March precisely because Swiss inflation was falling more rapidly than it had expected despite the strength of price pressures in the US.
Stefan Gerlach
Chief Economist, EFG Bank, Zurich, Switzerland; Former Deputy Governor, Central Bank of Ireland, 2011-2015
