THINK Ahead: We’re forecasting fewer rate hikes than markets. Could we be wrong?
After this week’s hawkish antics at the ECB, markets are pricing in loads more rate hikes, with no cuts in sight. At ING, we’re not convinced. James Smith argues that it all comes down to whether the inflation shock has simply been delayed, and whether the neutral rate is genuinely on the rise How markets ...
Central banks worldwide are anticipating a series of rate hikes, potentially more than the markets currently expect. This divergence of opinion presents an intriguing conundrum for analysts at ING. The bank's perspective is that the inflation shock may simply be delayed, and the neutral rate could be increasing. The ECB's hawkish stance during its recent meeting was unexpected, with two-year swap rates rising sharply, despite already being priced for additional rate hikes beyond September.
President Lagarde did not appear to soften market expectations, indicating the central bank's commitment to high rates. While there are reasons to question the ECB's motives, such as the discrepancy between her statement that inflation will be "longer lasting" and the actual data, ING acknowledges that the possibility of delayed inflation cannot be entirely ruled out.
Other factors, like businesses' ability to pass on energy costs, workforce bargaining power, and the impact of AI-driven capital demand, also contribute to the uncertainty. Despite the arguments for higher rates, the consensus among markets remains that interest rates will continue to rise, with no expectation of a decrease in the near future.
For now, ING's base case suggests a world where rates keep climbing, leaving little room for a scenario where they start to come down.
Written by urgent.news from Hellenic Shipping News's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.