Inflation dilemma: where now for central banks and fixed income?
With inflation at decade highs, central banks are caught between responding to current realities and trying to predict where inflation and the economic environment will be in the medium term. In this paper, Jim Cielinski, Global Head of Fixed Income, considers the potential pitfalls and impact on fixed income. Key areas covered include:
- The trajectory of change as central bankers doubt their own “transitory” story, plus the growing divergence at policy level.
- The potential for policy error as economies adjust to the tailwind from reopening but face offsetting headwinds from fiscal drag, a squeeze on real incomes and growing cost pressures on corporates.
- The potential implications for rate sensitive and riskier credit assets.