EXECUTIVE SUMMARY The Taylor rule suggests that further monetary tightening is necessary to address the current bout of inflation. In addition, low unemployment gives the Federal Reserve scope to hike rates further. However, compared with other episodes of inflation since World War II, the sensitivity of the U.S. economy to higher interest rates is exceptionally high. Thus, the Fed faces a dilemma: If it is unflinching in stanching inflation, all risk assets could experience a brutal sell-off; if, as we believe, the cost of controlling inflation is too high, then inflation could remain elevated for longer, which could bolster real assets. Download PDF
Blog Pausing Is Not on the ECB’s Agenda as Inflation Concerns Persist The European Central Bank hikes rates and indicates there is more ground to cover.
Blog Evolving Risks Prompt One More (Likely Final) Fed Hike Tighter credit conditions pose increasing risks to economic activity, leading the U.S. Federal Reserve to signal a likely pause.
Viewpoints Canada’s Economy: Strong Banks, Vulnerable Consumers We believe Canada’s banking sector is more insulated from some of the issues facing the U.S. banking system, and as a result, credit conditions in Canada may tighten less than in the U.S.