Central banks have not yet reached their goal - Perspectives Long view, BayernLB Research

Central banks have not yet reached their goal

Inflation has peaked, yet the Fed and the ECB will still raise rates somewhat higher. This will determine economic growth in the near term, whereas “the Four Ds” will predominate in the medium term.

Perspectives Long view (edition 2023/2)

Clear & concise

  • Inflation rates have peaked in both the United States and Europe;
  • We are expecting a minor growth bump in the USA and a recession in Europe;
  • Central banks will slow their tightening pace, with key policy rates poised to peak during the second quarter of the present year;
  • Yield curves on both sides of the Atlantic will remain inverted for a longer period.

Video: An espresso with Jürgen Michels


According to the customary definitions, major Western central banks have pushed their key rates up into restrictive territory, and peak inflation is now behind us. It is logical therefore that monetary policymakers will now move to downshift their rate-hiking pace and will adopt a more data-driven stance. For investors, the question hanging over the forthcoming central-bank meetings is not going to be “How high will the next rate hike be?” but rather “Is there going to be a further rate hike?”

Even though the ECB has already provided an uncommon amount of clarity by pre-announcing a further 50bp policy rate hike for their March get-together, the meeting will prove a highly exciting affair nevertheless. This is because ideas about the way forward appear to be diverging sharply in the wake of a phase of marked consensus within the Governing Council. The debate will be based on the new set of staff macroeconomic projections, but also on a decidedly mixed bag of data, ranging from receding inflation rates to economic indicators with conflicting signals to...

Read more Central banks have not yet reached their goal (2023/2/22)