The foundation of sustained economic and financial soundness is entirely dependent on the restoration of price stability. This is why Fed Chair Jerome Powell is keeping the consecutive interest hikes on the table. Moreover, many influential economists are warning that the hardest part of reining inflation to 2.0% lies ahead. The Bank of International Settlement (BIS) wrote in its latest annual report that the last mile to price stability may be the most challenging. That was echoed by the gathering of the top policymakers of the 4 most powerful central banks in Sinatra, Portugal last week. What is even more interesting was their admission that they do not understand why the economy is not responding to rising interest rates in an usual manner. Accordingly, they have publicly broadcast that they don’t have confidence in their own forecasts. Thus, if these global monetary authorities cannot make up their mind as to what’s coming, we, as investors, have no other choice but to make up our minds. In my judgement, I believe that the current cycle of inflation will be arrested by two main forces.
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By Hubert Marleau