The financial markets gambled — and bet heavily — against the mantra from the central banks that interest rates will have to stay ‘higher for longer’ to reduce inflation. What if they’re wrong? Meeting that the bank should “absolutely not” lower its guard against inflation and had not even discussed the issue of when interest rates should fall.
But from US Federal Reserve Board chairman Jay Powell that the Fed was “very focused” on not waiting too long to cut interest rates — and the general tone of its forecasts — had already sent interest rate markets into action. By the time ECB chief economist Philip Lane repeated the Lagarde mantra in Dublin in the week before Christmas, longer-term market interest rates had dropped further. If this trend holds, it will change a lot of things going into 2024. The scale of what happened in the final weeks of this year is striking