Central Banks slowly beginning an interest rate cycle, lead by the Federal Reserve. Rate now at 1.00%, low compared to past cycles, amidst the global food and energy inflation crisis. The fear of higher rates and slowing economy may be a force of hand play if oil stays above $100 USD. Central banks have not priced in stagflation.

The Australian Central Bank or Reserve Bank of Australia amidst surging inflation and a rate hike cycle by the U.S Federal Reserve, have increased interest rates to 0.35% (2022/05/04).    The first rate hike in 11 years,  the Australian Dollar (AUD) rallied from its low of 0.70 to 0.72 cents on on the 25 basis points rise, lifting from 0.10% to 0.35% (current rate).  Subsequently collapsing back down to 0.71 on the 6th May, after the Federal Reserve sent through their expected 50 basis points rise, setting U.S interest rates at 1.00% from the 0.50% 16th March increase.  The U.S Dollar sold, stock markets surged as Fed chainman Jerome Powell, said that he did not envision higher rates as a shock-and-awe but a gradual 50 basis point rise from time to time.

The U.S. Dollar remains bid, as the AUD sold, refer to the charts below the AUD/USD with the Aust interest rate, green line at 0.35%  (Chart 1)

Rates are still historically low in compared to our surging inflation dilemma, when Central Banks began their aggressive monetarization programs in 2008 after the credit crisis and the Lehman Investment Bank collapse, note on Chart 2, Aust rates were at 7.25% in 2008, in December 2008 that had been chopped down to 4.25%, but as noted with Chart 2, it was the U.S Fed that dropped close to 0% territory at 0.25% in December 2008.  Flooding the world with cheap U.S. Dollars and financing property markets throughout the global economy.  Probably the greatest folly and misstep in economics the world has even seen.  Yes, cheap home loans were galore for over 15 years, but alas it has left us all vulnerable to an inflation shock.  Which is occurring today.  Hence Central Banks, very slow on the trigger and reluctant to increase rates, but the U.S economy is overheating.  With a 1.00% rate, it is now forcing other countries and Central Banks to match the Fed's rate and/or trail close behind.   

This the great liquidity squeeze is on, yet it is hard to see these incremented steps of rate rises will have much affect on the waves of inflation.

It's al about energy and food costs.

Note Chart 3.  Oil, food and Inflation:

Blue line:  Oil price.  Yellow line: Food inflation.  White line:  U.S inflation