We reiterate the main driver affecting the current and forward-looking macro environments is a combination of sustained inflation, mounting recession fears and geopolitical developments. Price stability has become the paramount goal and even more complicated to reach, therefore CBs will make sure high inflation will not be entrenched in economic agents’ long-term expectations.
Different inflation forces are at play in US and Europe. While in the former, labour market tightness and strong demand are the key drivers, the latter is primarily affected by the energy crisis triggered by the conflict in Ukraine. Then, if the Fed has started a fast-paced quantitative tightening to bring inflation to target at any economic cost, ECB and BoE face a more arduous task as they are calibrating restrictive monetary policies in less resilient economies. Our long-term central scenario sees inflation and interest rates stabilising around higher levels than the past decade: we project that systemic shifts to a greener economy and geopolitical events (together with linked supply chains disruptions) will keep risk premiums and long-term volatility elevated.
You can now read the full whitepaper at the link below