My subscription
My Subscription All Publications

Slamming on the brakes

It’s been a momentous few weeks in the world of central banking. Persistent price pressures have prompted a hawkish shift almost across the board and we now anticipate the most aggressive and synchronised tightening cycle since the Volcker shock of the early 1980s. The key question now is not whether central banks will slam on the brakes, but what might stop them? We doubt that the inflation picture will improve very much in the near term, but weakening activity should generally cause a slowdown in the pace of tightening later this year. Asia Drop-In (30th June, 09:00 BST/16:00 SGT): Are Asia’s central banks behind the curve? Can the Bank of Japan and People’s Bank of China continue to go against the grain? Find out in our special session on what global monetary tightening looks like in Asia. Register now.  
Jennifer McKeown Head of Global Economics Service
Continue reading

More from Global Economics

Global Economics Update

What recessions mean for the labour market

Given that unemployment rates have usually risen significantly in recessions, it is tempting to conclude that history is about to repeat itself, to the frustration of policymakers seeking soft landings in labour markets. But the pandemic has produced uncertainties that raise the possibility of jobless rates not rising too far.

15 August 2022

Global Economics Chart Book

Not all price pressures are easing

There have been growing signs that we are at the turning point in global inflation. Commodity prices and shipping costs are down both in y/y and level terms, while product shortages have alleviated as softer demand and fewer bottlenecks have opened up spare capacity. And, in the past week, we received the US CPI print for July, which showed that headline inflation there fell by more than the consensus expected. However, central banks won’t take too much comfort from all this just yet. While headline inflation is set to fall sharply in the year ahead, red-hot labour markets and elevated inflation expectations mean that underlying sources of inflation remain intact. Slowing economic growth and tighter monetary policy should help resolve this problem. In fact, the past month’s data showed that activity is already bending under the weight of higher interest rates and multi-decade-high inflation. But it is still far too early to be confident that inflation will settle around target rates in two years’ time. So, our sense is that investors have gone a bit too far in anticipating a major shift in – particularly Fed – policy in the next 6-12 months.

12 August 2022

Global Central Bank Watch

Will frontloading make hard landings less likely?

The pace of policy tightening has increased still further, with many central bankers arguing that rate hikes must be “frontloaded” to tackle inflation risks quickly. In the current environment, this probably does offer the best chance of avoiding a future hard landing for most economies. And given evidence so far that activity is slowing but not slumping as policy tightens, aggressive rate hikes seem set to continue in the near term. But while this policy may reduce the threat from inflation in the medium term, it carries big economic risks in the near term, particularly where household debt is high and house prices are elevated.

4 August 2022

More from Jennifer McKeown

Global Economics Update

Questions on a momentous week in central banking

We held a Drop-In yesterday to discuss recent developments in central banking and related financial market implications. This Update answers several of the questions that we received, some of which we couldn’t fit in during the event and some that we are sharing in case you missed it. World with Higher Rates - Drop-In (21st June, 10:00 ET/15:00 BST): Does monetary policy tightening automatically mean recession? Are EMs vulnerable? How will financial market returns be affected? Join our special 20-minute briefing to find out what higher rates mean for macro and markets. Register now

17 June 2022

Global Economics Focus

The implications of higher food prices

Surging food prices are a cloud over the global economic outlook. While food inflation should fall sharply next year, it will remain high in the near term, eating further into households’ spending power and weighing on discretionary spending. What’s more, high rates of food price inflation will add to reasons to raise interest rates rapidly.

14 June 2022

Global Economics Focus

Can the world cope with higher interest rates?

We expect the most aggressive policy tightening cycle in decades to cause a slowdown in global economic growth, not a severe downturn. The biggest risk is that inflation stays higher for much longer than we anticipate, causing central banks to raise interest rates well beyond neutral levels to quash it. We judge that an extra ~100bp of hikes beyond our forecasts might be enough to cause downside risks to crystallise.

1 June 2022
↑ Back to top