Source: Bloomberg, Unigestion, as of 11 November 2021
The outcomes of the most recent monetary policy meetings held by the US Federal Reserve (the Fed), the Bank of England (BOE) and other central banks were a surprise to investors. Indeed, investors had started exhibiting high expectations of increasingly hawkish forward guidance. However, the Fed, despite delivering the much anticipated tapering of asset purchases, maintained its soft stance on inflation while the BOE did not hike interest rates even though it was supposed to be “a done deal”. Markets had already priced in future rate hikes and yield curves had adjusted accordingly, creating a window of opportunity to take a step further toward a less accommodative stance without shaking investor sentiment. Was this a missed opportunity? We think so.
Yet investors remain defiant and, in the case of the US, are still pricing the first rate hike to happen as soon as tapering is over, i.e. mid-2022.
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