Global central banks accelerate tightening, and inflation may be on the top

Editor's note: Dr. Dai Yifeng is a macro hedge fund manager who worked in the United States. He has rich theoretical and market experience. He once served as a fund manager at domestic mainstream funds. Now, Dr. Dai Yifeng wrote a market weekly report every week. After his permission, "Understanding the Economy" will publish his views on the global market every week, asking him to bring the closest front -line market thinking from Wall Street.

Author | Dai Guifeng

Overseas macro hedge fund manager, understanding APP expert (TA has settled in the app mini program)

A. Summary

The central bank's tightening policy is accelerating instead of slowing down.

In the past week, the Bank of Canada and the European Central Bank have raised interest rates for 75 basis points -the deposit interest rate of the European Central Bank has now been positive.

The Bank of England and the Fed may follow, and also raised 75 basis points. The Federal Reserve ’s approach to raising 25 basis points at each meeting now seems to be too long. 75 BPS and even 100 BPS have become the new normal.

But at the same time, inflation may indeed be at the top.

Global central banks (at least in developed economies) are increasingly hawks, and inflation may reach its peak, indicating that the central bank's tightening policy may eventually slow from 2023.

When it comes to slowing down, I don't mean this slowdown from 75 base points to 50 base points -this may happen in the remaining few months this year. The slowdown I said refers to the rate hike that reduced to 25 basis points, and then finally suspended interest rate hikes. In this case, we may need to wait until 2023.

Inflation is obviously the top of the top and the central bank's suspension of tightening the policy, which will be the bottom of the risk assets. Because inflation and the central bank's interest rate hikes are originally the cause of the market decline.

In this way, the market may be better in 2023.

B. Competitive tightening

The British Central Bank entered the interest rate hike cycle earlier, earlier than the central banks of most other developed countries. Since this year, the Bank of England has been actively tightening.

Emerging markets enter the interest rate hike cycle earlier. Many emerging market countries started interest rate hikes in mid -2021.

The only exception is China. China has been cutting interest rates since 2022. Compared with other countries, China is obviously in different cycles.

C. Inflation may be on the top

The global central bank is now very anxious. This is because the inflation is high and the places are rising, especially for developed markets, especially for Europe.

Due to the war between Russia and Ukraine, inflation is a big problem for Europe, including Britain.

However, Britain and EU countries are taking measures to set the upper limit of the energy setting of consumers. This may reduce their inflation rate.

Emerging market inflation seems to be at the top.

The recent decline in oil prices has relieved inflation pressure. If it is only a very naive look at the curve, the recent decline in oil prices will bring a significant decline in inflation. But the reality is that in addition to oil, there are many supply problems that lead to inflation.

Moreover, the Fed may pay much attention to the labor market and worry about wages. The Philips curve used to be flat and even tilted. But since 2020, Philips curve has been tilted sharply again.

- END -