Investors worry major central banks will need to keep interest rates higher for longer
Just like that, euphoria in the world’s biggest bond markets has evaporated as signs that inflation is unlikely to ease as fast as hoped suggests major central banks will need to keep interest rates higher for longer.
Data on Tuesday showing U.S. inflation slowed less than expected in January and a stunningly strong jobs report earlier this month have fuelled expectations that the Federal Reserve will need to raise rates further to contain inflation. “The previous investment regime of central bankers riding in on their white horses and coming to the rescue might not happen because they may have their hands tied for longer than markets had expected,” said Georgina Taylor, head of multi-asset at UK fund manager Invesco, which manages $1.48 trillion in assets.
Underpinning recent market euphoria has been bets that inflation will quickly fall below 3% over the next year, market-based inflation expectations show. At risk is a strong cross-asset rally that began last October on bets that central rate rises so far would cool the global economy just enough to quell inflation, allowing policymakers to turn supportive towards markets again.
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