The 'gentle and forgiving path' taken by developed-market central banks to combat inflation in the past year is likely to prove unsuccessful, JP Morgan...
The “gentle and forgiving path” taken by developed-market central banks to rein in inflation over the past year is likely to prove unsuccessful and trigger the need for more forceful, biblical-type action.That’s the view of economists Bruce Kasman, Joseph Lupton, and Michael Hanson of JPMorgan Chase & Co.
On Monday, investors attempted to recover from weeks of volatility driven by a stream of unexpectedly strong U.S. economic data, pushing up expectations for continued rate hikes by the Federal Reserve. All three major U.S. stock indexes DJIA SPX COMP were looking to rebound after booking weekly losses, while Treasury yields were mixed after 2- and 10-year rates jumped for a fifth straight week and the ICE U.S. Dollar Index DXY was off 0.4%.
Over the past year, developed-market central banks have delivered rate hikes of roughly 300 basis points or more each, according to JPMorgan. “Recent developments suggest this gentle and forgiving path will prove unsuccessful,” Kasman, Lupton and Hanson wrote, in a Friday note. “The risk of triggering a more wrathful Old-Testament style central bank reaction is on the rise. The transmission of the rapid shift in policy still underway also raises the risk of a recession not intended by central banks.”
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