The global economy is rapidly slowing as a momentous monetary tightening cycle is unfolding at top speed, particularly in developed markets. An all-out war to slay inflation will inevitably cause some collateral damage in terms of growth and employment. But, given the reasonably robust starting point, the feeling—for now at least—is that this is an acceptable tradeoff. Some short term pain for long term gain, some short term volatility for longer term stability…
This may be true, up to a point. What concerns us is the speed and aggressiveness of these hiking moves in a world where equilibrium is very hard—perhaps even impossible— to ascertain right now. After all, we are still dealing with the protracted war in Ukraine (and its particularly troublesome implications for European energy supply) and with the lingering effects of the pandemic (on everything from supply chains to migration). And so, there are plenty of wild gyrations in the macro data but no clear indication of where these indicators would ultimately settle. We are reluctant to extrapolate too much from this moment in time.
