RISING inflation and the spread of a new variant of the coronavirus will weigh on central banks’ minds this week as they meet to decide how quickly to withdraw their pandemic-era stimulus.

The U.S. Federal Reserve is scheduled to announce its latest interest rate decision later today, followed by the European Central Bank (ECB) tomorrow.

The arrival of the Omicron variant has raised concerns of new economic disruption, supply chain bottlenecks and even higher prices.

But the pickup in U.S. inflation to 6.8 percent year on year in November, the fastest pace since 1982, already seems to be pushing Fed policymakers towards a faster exit from its asset purchase program than first announced.

Fed Chair Jerome Powell has already flagged the rate-setting committee will likely announce at its policy meeting this week that it will accelerate the end of its bond-buying program, wrapping it up by March instead of June, in order to clear the way for the Fed to lift off interest rates from near zero, where they have been held since March 2020 when the coronavirus pandemic triggered a short but deep recession.

The sharp turn in rhetoric as the central bank plots its course out of emergency era measures reflects the depth of unease over how the COVID-19 pandemic has juiced demand, played havoc with supply chains and led to broader and more persistent inflation that risks becoming embedded in business and consumer expectations.

The question facing the Federal Open Market Committee this week will be how far to bring forward the date and what the new calendar for interest rate increases will look like.

Most analysts expect the Fed to stick to forecasting three rate hikes in 2023 and 2024, given officials still expect a rapid abatement of price pressures in the latter half of next year as the pandemic recedes from view.

In the eurozone, the higher cost-of-living is being experienced at the moment, putting pressure on the European Central Bank to scale back stimulus and consider raising interest rates earlier than planned.

Eurozone inflation jumped to 4.9 percent in November, a record in the history of the single currency. Inflation in both German and Spanish surged to 29-year high in November.

But the ECB has so far insisted that the inflation surge in the 19-nation zone is transitory, and is wary of acting too soon and potentially stifling the pandemic recovery.

ECB President Christine Lagarde said earlier this month that a rate hike in 2022 was “very unlikely,” despite inflation pressures that could see the bank revise its forecast for 2022 above its 2-percent target.

The ECB will publish its new economic forecasts along with its monetary policy decisions tomorrow, including its first estimates for 2024.(SD-Agencies)