The war and the sanctions the West have imposed are also severely impacting fertiliser prices and availability – Russia is a major exporter of potash, ammonia and urea – and is affecting food supply and prices.

Central bankers, who tended to hold to the Fed’s now-discarded view that the supply chain disruptions caused by the pandemic and their impacts on inflation were transient, have been caught out by the persistence of historically high inflation rates and are now being forced to try to respond to them.

Because policy rates were to historic lows in response to the pandemic – essentially to zero, practically zero (0.1 per cent in Australia) or below zero (Europe) -- the response is going to be aggressive.

The Fed is expected to deliver a number of 50 basis point rate rises this year – the federal funds rate could be 2.5 per cent by the end of the year – while also accelerating the rate of shrinkage in its $US9 trillion ($12.8 trillion) balance sheet, a balance sheet swollen by its bond and mortgage-buying in response to the pandemic. The RBA is expected to end the year with a cash rate of at least 1.5 per cent, with some tipping it could also go as high as 2.5 per cent.

The abrupt and belated U-turns by central banks postures ahead of the action expected this week have already had significant consequences, most obviously in the volatility and sharp sell-offs in equities markets.

The US sharemarket is down about 14 per cent this year, with the decline accelerating through last month. The Australian market has fared better, sliding only two per cent from its peak in January, largely because it doesn’t have the big technology stocks that have dominated the bull market in the US and whose value is most affected by the outlook for interest rates.

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Bond investors have also experienced massive losses (on paper or real), with the first quarter of the year being described as the worst on record.

Yields, which move inversely to prices – as yields rise the market value of the bonds falls -- have soared. In the US the yields on two-year Treasury notes have leapt from 0.73 per cent at the start of the year to 2.7 per cent. The yields on 10-year bonds have risen from 1.5 per cent to 2.93 per cent.

Here, the yields on 2-year securities have jumped from 0.59 per cent to 2.5 per cent and 10-year bond yields from 1.67 per cent to 3.23 per cent.

Given how inflated both equity and bond markets were by the unprecedented low rates and the deluges of cheap cash made available by the central banks as their responses to the pandemic overlaid pre-existing loose-money settings, there might be more trauma ahead for investors.

What is clear is that central banks are only just, belatedly, starting the process and are a long way from its completion. That spells a lot of uncertainty and potential financial and economic dislocation in the meantime.

The shift in monetary policies is also having a major influence on currencies. The geopolitical and economic turbulence and tensions has caused something of a flight to the safe haven of the US dollar, whose global power has been highlighted via the sanctions.

The prospect of a very sharp rise in interest rates on US government debt – a rise faster and further than the European Central Bank or Bank of Japan are likely to contemplate – has also been a major factor in a surge in the value of the US dollar. The dollar is up nearly 8 per cent this year against a basket of its major trading partners’ currencies, including a near 6 per cent rise last month.

Conversely, the value of the euro, yen and yuan, relative to the greenback, have depreciated significantly. The Australia dollar was trading as high as US75.79 cents only a month ago. Now it’s around US70 cents.

While depreciating currencies do make exports more competitive they also impact inflation as the cost of imports rise.

More particularly, they also increase the value and servicing costs of US dollar-denominated debt, with implications for both public and private financing.

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That’s a particular, but not exclusive, concern for developing economies, which tend to have high levels of US dollar debt. There have been previous episodes of unusual dollar strength that have precipitated financial and economic crises in South America and Asia.

It is unclear how far central bankers will have to go to bring inflation rates under control, regain their own inflation-fighting credibility and “normalise” monetary policies that have been abnormal since the financial crisis in 2008.

What is clear is that they are only just, belatedly, starting the process and are a long way from its completion. That spells a lot of uncertainty and potential financial and economic dislocation in the meantime.

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