At the end of 2021, major central banks including the US Federal Reserve, Bank of England and European Central Bank attempted to navigate a new environment of higher inflation, with deviation between them on when to increase interest rates.
Faced with a complex macroeconomic backdrop, this year central banks are likely to seek ‘Goldilocks' policy normalisation to keep inflation in check. In other words, neither too hot nor too cold. It is not an enviable dilemma. Central banks, and financial markets, have both bearish and bullish factors to weigh up. Bearish developments include a reduction of loose macroeconomic policy conditions, high inflation, and uncertainty about the pandemic. Yet the healthy state of economic and corporate earnings growth, as well as private sector balance sheets, and an accelerated effort b...
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