Volatility in markets will intensify as central banks believe they can tame high inflation without “crushing growth,” the world’s biggest asset manager, BlackRock, said.
“We expect more volatility ahead as central banks choose sides in the difficult trade-off between growth and inflation,” strategists at BlackRock Investment Institute said in a note today.
“We believe the Fed will raise interest rates too far and cause acute damage to growth before it shifts policy,” they note.
It is recalled that the Federal Reserve begins tomorrow, Tuesday, the two-day meeting of its monetary policy committee, which is expected to conclude with another huge increase in interest rates.
“The Fed is set to raise interest rates by an additional 0.75% or more this week to curb inflation.” BlackRock strategists said,
As they comment, “central banks believe they can contain inflation and cause only a mild slowdown, when in fact this is unlikely, in our view.”
“They ignore the hard trade-off they face: crush growth or live with some inflation,” they say.
According to BlackRock, a “soft landing” is unlikely and the Fed will shift its policy next year when the economic impact of rate hikes becomes clear.
“The market agrees. Interest rate path forecasts point to the Fed cutting interest rates in 2023,” the analysts point out.
Source: Capital
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