US consumer prices jumped by 6.2% in October, their highest level in 30 years! Deteriorating inflation data have pushed markets towards forecasting a faster pace of tapering and a more rapid removal of accommodation in 2022. We expect the Fed to act gradually as Covid remains a major risk and as the Fed would like to see a higher participation rate.
The Fed will have a step-by-step approach and a rapid turnaround in strategy is possible. To a greater extent, a high level of debt, a tight valuation of assets, and the huge investments required to move to a low-carbon economy will limit the Fed’s ability to raise rates.
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