BayernLB Research Perspectives - Interest rate turnaround and “Zeitenwende” push us into uncharted territory
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Research

Interest rate turnaround and “Zeitenwende” push us into uncharted territory

The epochal shift in geopolitics is leading to a recalibration of global trade and financial flows. Growth will drop in the face of higher inflation pressure and more restrictive financing conditions.

Perspectives Long view edition 2022/07 (2022/07/27)

Clear & concise

  • Inflation will only recede hesitantly in spite of the pronounced cyclical slowdown;
  • The pace of key-rate tightening is set to remain high through into the autumn;
  • The policy and effectiveness of the TPI will be relevant for the ECB’s tightening pace;
  • Low growth rates and higher inflation and interest rates will dominate medium term;
  • With high volatility and rising interest rates, we recommend a higher cash weighting.

Video: An espresso with Jürgen Michels

Editorial

Hounded by inexorably rising inflation rates, central banks have reacted in recent weeks by implementing unusually sizeable key-rate steps. The latest convert here is the ECB, which - thanks to its new presumed panacea TPI (Transmission Protection Instrument) - now feels in a position not only to make proclamations but also to take determined action.

With inflation rates remaining obstinately high, further major rate hikes are on the cards into the autumn. Despite increasing signs of an economic slowdown, including a mild recession in the USA and ongoing stagflation in the euro area (with a likewise increased probability of a mild recession), central banks will likely keep their tightening pace high in the first instance. Once the neutral zone has been reached or exceeded, however, the Fed should start pausing the rate-hike...

Read more Interest rate turnaround and “Zeitenwende” push us into uncharted territory - edition 2022/07 (2022/07/27)