BlackRock, Fidelity and Carmignac are warning

 markets are underestimating both inflation and the ultimate peak of US rates, just like a year ago.

The stakes are immense after Wall Street almost unanimously underestimated inflation’s trajectory. 

Global stocks saw $18 trillion wiped out, while the US Treasury market suffered its worst year in history. 

And yet, going by inflation swaps, expectations are again that inflation will be relatively tame and drop toward the Federal Reserve’s 2% target within a year, while money markets are betting the central bank will start cutting rates.

Bloomberg 10 January 2023

The last 2pc to 3pc required to return inflation to the 2pc level could prove tricky

Bringing the inflation rate down 4pc to 5pc from today's elevated levels ought to be relatively straightforward from here on in; base effects alone after the shock of last year's energy crisis ensure that it is already largely pre-baked, and ought not to require significantly higher interest rates than now.

But most central banks privately admit that the last 2pc to 3pc required to return inflation to the 2pc level targeted by the Bank of England, the US Federal Reserve, and the European Central Bank could prove tricky, and might require inducing a much deeper recession than you would want.

Jeremy Warner  Telegraph 10 January 2023


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