After several decades of predominantly very low inflation rates, many central banks are having a hard time in the face of alarming currency devaluation.

Over the past few days, the world's two main central banks have revealed how they intend to position themselves against inflation.

In both cases, an unfavorable judgment by later historians is to be feared.

In Washington, the Federal Reserve grossly underestimated the dangers of inflation, as it has done more often in its history.

Also following an old tradition, in a second step it has opted for a violent monetary policy reaction that could plunge the country into a recession in the coming year.

The latest rate hike of 0.75 percentage points is likely to be followed by further steps.

In their assessment of the foreseeable future, the views of both American monetary politicians and analysts on the financial markets differ.

It wouldn't be surprising if the key interest rate moved close to 4 percent in the coming year.

Compared to previous interest rate cycles, that wouldn't even be much.

After all, the Fed has decided to take up the fight against inflation.

That's laudable.

Deplorable impression

Compared to the Fed, the actions of the European Central Bank unfortunately leave a deplorable impression.

Only six days after the mere announcement of future interest rate hikes and a long overdue end to the net purchases of government bonds, the perception of the ECB leaders was that the framework of the monetary union was crunching so alarmingly that a special meeting convened at short notice seemed necessary.

If it is not even possible to end the age of negative key interest rates with an inflation rate of 8 percent without additional support for vulnerable member countries, the question is justified as to how the ECB envisages a stability-oriented monetary policy in the event of a conceivable further increase in the risk of inflation.

The ECB's concern revolves around disparate increases in government bond yields in the monetary union.

The yield gap between ten-year bonds from Italy and Germany, which had risen to around 2.4 percentage points in the past few weeks, is often used as an indicator.

This is above the long-term average, but well below the gap of a good 5 percentage points that was observed around a decade ago during the euro crisis.

The ECB accepts yield differentials resulting from different levels of economic performance.

However, she attributes rapid and sharp increases in yield differences to economically damaging speculative influences, which she believes make the implementation of her monetary policy more difficult.

Similar considerations led to the creation of the OMT program, which was heavily disputed in Germany, during the euro crisis.

It ties purchases of government bonds by individual countries by the ECB to restructuring programs with the euro rescue fund ESM, which are subject to conditions.

The OMT program was never activated because its very existence discouraged financial players from speculating against EMU member countries.

As such, its effectiveness was undeniable, but in the wake of the pandemic, it has been discredited in a way that amounts to debasement.

Potential program countries managed to portray the tying of purchases of their bonds to economic policy conditions as degrading.

A zeitgeist that prompted quite a few economists to

The ECB is sitting between all stools.

The increases in key interest rates required from a monetary policy perspective not only threaten to damage the effectiveness of monetary policy by increasing the yield differentials between bonds, but also raise questions about the sustainability of the public finances of several member countries.

In the current economic and political environment, nobody needs a new euro crisis;

Putin was probably most pleased about this.

Aware of OMT's problems, the ECB is now desperate for a new tool that would simultaneously allow for anti-inflation and government bond purchases, remain consistent with its mandate and be politically acceptable in capitals.

Left in the lurch by the governments, the ECB is in danger of being overwhelmed.