Investment Institute
Macroeconomics

Life at the Peak


  • We expect the BoE after one last hike to join the Fed and the ECB on having reached “peak rates”
  • While the “Table Mountain” trajectory is less damaging to the economy than the “Matterhorn”, this is not a riskless strategy, while in the months ahead we expect the central banks to continue to “talk hawkish”

After delivering a well-crafted dovish hike last week, we think the ECB has joined the Fed in having reached “peak rates”, and we expect the Bank of England to apply to the club this week as well after one last 25 bps hike.

Still, all three central banks will make it clear they remain data dependent and will not hesitate to hike again if need be. Even in the US where the deceleration in core inflation is more advanced, the Fed cannot ignore some faint but uncomfortable signals that price pressure remains too strong. Jay Powell this week will need to “speak hawkish” despite staying put, and we expect the FOMC to maintain one additional hike for 2023 in its “dot plot”, even if we do not think they will need to act on it given our forecast of a quite mediocre end of year for US growth. There may also be some interesting changes in the FOMC’s assessment of the “long-run” policy rate. All this would prolong the market’s own moves these last few weeks with less cuts priced in for 2024. The market has not changed its pricing for the ECB by the end of next year, and we find the 50% probability of a rate cut already in March 2024 quite daring – we see the first rate cut there in June 2024 at the earliest (i.e., with a much lower than 100% probability).  

In principle, a “high enough for long” approach should be less damaging to the economy than an “always higher” trajectory which would then probably need to be followed by emergency cuts (a “Table Mountain rather than Matterhorn,” to use Huw Pill’s striking image) but unfortunately it is difficult to assess in real time if a central bank has not already gone too far. Given how the two economies are currently faring, it seems to us the risk is higher in the Euro area than in the US.

At the other end of the monetary spectrum, we expect the BOJ to continue to plough its own – very special – furrow with no change to policy or guidance this week.  

Download the article
Download report (611.17 KB)

Related Articles

Macroeconomics

Electrify Europe

Macroeconomics

October Op-ed - Meeting in the middle

Macroeconomics

October Monthly Investment Strategy - A far-reaching US election

    Disclaimer

    This website is published by AXA Investment Managers Asia (Singapore) Ltd. (Registration No. 199001714W) for general circulation and informational purposes only. It does not constitute investment research or financial analysis relating to transactions in financial instruments, nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities. It has been prepared without taking into account the specific personal circumstances, investment objectives, financial situation or particular needs of any particular person and may be subject to change without notice. Please consult your financial or other professional advisers before making any investment decision.

    Due to its simplification, this publication is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this publication is provided based on our state of knowledge at the time of creation of this publication. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

    All investment involves risk, including the loss of capital. The value of investments and the income from them can fluctuate and investors may not get back the amount originally invested. Past performance is not necessarily indicative of future performance.

    Some of the Services and/or products may not be available for offer to retail investors.

    This publication has not been reviewed by the Monetary Authority of Singapore.