Wishful thinking is a poor replacement for that of the critical variety. Not too long ago, investors were expecting the U.S. Federal Reserve to deliver 5 rate cuts this year. Now, that number is considerably less. But then, it’s hardly surprising when U.S. core annual inflation for March was unchanged at 3.8%, exactly the same as the preceding month and the inflation target is 2.0%. As Democrat former Secretary of the Treasury, Larry Summers said “Rate cuts? How about a rate rise?”
All this was before events in the Middle East were elevated to new heights; the potential implications for oil prices and inflation being obvious. It remains our belief that the global economy is now much more prone to inflationary shocks and with most developed nations now debt ridden and still racking up annual deficits, it’s difficult to see such incessant thirst for funds aiding the cause of lower borrowing costs.
