Grappling with a rapid pickup in inflation and speculating on the likely response to it by global central banks have defined the dominant narrative for financial markets since at least mid-2021. That’s when the Federal Reserve began to signal that the time had come to begin scaling back Covid-triggered stimulus.
The start of 2022 brought a key turning point. The Fed’s hawkish rhetoric began to truly sink in for investors as it threatened to start ‘quantitative tightening’ – reducing the balance sheet to boost long-term interest rates – alongside interest rate hikes this year.
