A cautionary tale for central banks | Ausbiz

The Fed has backed itself into a corner, and needs to find an off ramp, says Isaac Poole from Oreana. The Fed’s focus on spot inflation leaves it set to hike by up to 1.50% by year-end. Isaac says there is no inflation expectations problem, nor wage spiral, so it should be proceeding cautiously here. He says the RBA’s minutes are useful guidance: “The arguments for a 25 basis point increase rested on the risks to global and domestic growth, and the potential for inflation to subside quickly. The cash rate had risen by a significant amount in a short period of time. While consumption had so far held up, monetary policy operated with a lag and there was a risk that household spending might adjust by more than expected”. Isaac expects a pause or slowing in pace of hikes by year-end. Turning overseas and Isaac says don’t read too much into China’s delayed data. Isaac believes China’s growth has slowed. It is going to miss the previous 5.5% growth target by a wide margin. Covid zero, property and trade are all challenges. But borders are soft reopening and the peak to trough decline in equities of 35% is already discounted a recession. Isaac advises against writing off China’s economy and equity market over 2023.
(Source: Ausbiz)

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