19/04/2024
Expert Talk
The Upside of Political Uncertainty
A global assessment of the implications of recent banking sector developments
Sunday 02 April 2023
Expert Talk
A global assessment of the implications of recent banking sector developments
The economic landing could be harder than initially thought. We already see a tangible deterioration of the US economy, which should fall into a recession in Q2. The credit crunch, which is already starting to materialise, will impact growth and will determine how pronounced the
recession will be. Amid a weaker economic outlook, the market is reassessing central banks’ actions. We still think that, in the meeting this week, the Fed will likely raise rates by 25 basis points. But not all hikes are created equally: this measure will be needed to maintain market confidence (as the ECB did). Then possibly we may have another 25 by the end of the year but this would assume there are no further problems in the banking sector, Fed liquidity measures stabilise the banking sector, a lower credit supply, and sticky and persistent inflation. For us to confirm the 5.25 terminal rate, all these conditions would have to materialise. We are entering uncharted waters, and we expect central banks to keep an even more data-dependent approach, with little to no policy guidance, as the recent ECB meeting de facto introduced.
