Market turmoil is unlikely to dent the real economy

The financial market turmoil of the last month has demoted the economic news to the backseat. But it now looks like the markets are slowly returning to “normal”. Equity prices have risen from their troughs while overnight interest rates have fallen back to levels more consistent with official interest rates. The impact of the market turmoil on the real economy will not be clear for some time. But, barring any renewed deterioration in the markets, we think that it will be small. And the latest news on activity and prices suggests that the case for one more rate hike remains.