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.
Blog One Hike, Three Hints, and a Surprise Rate Cut Recent signals from major central banks suggest challenges ahead with easing monetary policy amid above-target inflation.
Blog ECB: Next Stop, June While market pricing looks more reasonable, European Central Bank rate cuts, which could commence in June, are unlikely to be delivered as aggressively as the market expects in 2024.
Blog Fed Slowly Building the Confidence to Cut The Federal Reserve sees progress on inflation, but wants more certainty before it’s prepared to lower the policy rate.