12 months ago, Federal Reserve Chairman Jay Powell, noted “The question of when to moderate the pace of increases is much less important than the question of how high and how long to keep monetary policy restrictive”. At the time, U.S., UK and Eurozone rates were 4%, 3% and 2.5% respectively. After their December 2023 meetings, all three central banks elected to maintain the status quo with rates of 5.5%, 5.25% and 4.5% respectively.
The Federal Reserve has indicated rates are at or near their peak and that 2024 would likely see three 0.25% cuts, amounting to 0.75% in all. We suspect the European Central Bank and the Bank of England have far less room for manoeuvre but even the Fed may well find it’s required to change tack should any unforeseen inflationary pressure reappear. We have a suspicion the global economy is now much more prone to such events than many realise. We therefore question whether a ‘soft landing’, engineered by central banks, is a realistic proposition.
