Economics: The final yards

Another round of hawkishness from central banks

Central banks have been trying to guide up market interest rate expectations yet again. But unlike previous attempts, this is aimed at reinforcing a ‘higher for longer’ profile rather than guiding up terminal rates. This has been successful, so far.

Central banks want to push services inflation lower

Inflation is falling in most economies, but this has been concentrated in goods prices. Central banks want to see services inflation slow too – code for weaker wage growth and higher unemployment. They’re unlikely to ease until they see evidence of this.

Policy appears roughly in the right place to deliver that

We continue to think that rates are high enough to achieve this outcome. Consequently, we see just one more hike from the Fed (to 5½%) and the ECB (to 3¾%), and two more from the BoE (to 5½%). Finally, we discuss some risks to this outlook.