We have been here before, many times. The lesson of history is unequivocal: central banks cut interest rates by too much, then increase them by too much, and the result is invariably a major crisis.

It happened in the 1980s. In the UK, for example, interest rates were slashed in 1987, creating an unsustainable economic boom (The Lawson Boom) and increased dramatically over the next two years, precipitating a crash in house prices and a deep recession. The US had a similar experience.

In the 1990s, interest rates were slashed globally, but led by the Fed, this time creating a boom in many of the Asian tiger economies. Then the rate hikes of 1997 led to the Asian crisis of that year and the Russian crisis of 2008 — two events with massive long-term implications.

In the 2000s, interest rates were slashed again to the lowest level in decades, followed by hikes and the 2008 crash.

This time around, the impact could be even more dramatic as the last decade saw global private sector debts soar at a time of super-low interest rates.

The UK is vulnerable because of the high level of house prices and mortgages, which were taken out at extremely low-interest rates and are likely to increase massively in the next year or two as fixed rate deals come to an end.

If history is any guide, the consequences of central bank actions in 2022 and 2023 will be severe.

Paradoxically, the central bank in China is cutting rates.

There are good reasons to expect inflation to fall regardless of whether central banks increase rates further, keep rates on hold or even cut rates.

Supply chains adjust, they always do, although it takes time. The inflation crisis of 2022 was largely caused by supply chain bottlenecks at a time of ultra-low interest rates creating soaring demand.

It has been clear for several months now that those bottlenecks have eased — many of the surging commodity price indexes — previously considered a pre-cursor to inflation, have fallen sharply. Brent Crude oil, for example, has fallen from around $120 a barrel just over a year ago to around $75.

Recent weeks have seen a slight rise in some commodity prices, such as lumber, but the point is they remain massively lower than the peaks of last year and the year before.

To cease to exert inflationary pressure, commodity prices don’t need to fall; they just need to stop rising — the reality is that most have fallen significantly.

In the UK, the producer price index provides evidence of how the adjusting supply chain is alleviating inflation — input prices fell 1.5 per cent, month on month in May, and the annual rate is down to 0.5 per cent from 24.4 per cent last June.

Central banks say they are concerned about second round inflationary effects, but interest rates at around five per cent won’t merely dampen demand a little, as they expect. Instead, they are likely to cause serious economic challenges.