Bank Of America: What If Interest Rates Remain High(er) For Longer?

Bank of America note that “as G10 central banks have reached or are about to reach their terminal policy rates, the key question is whether this is enough, particularly as markets are pricing aggressive policy easing to follow soon. Although monetary policies affect the economy with a lag, measures suggest that they may not be tight enough and markets may also be too optimistic on policy easing. We also repeat our concern that fiscal policies are in most cases loose, particularly in the U.S. Assuming central banks remain committed to their inflation targets, our analysis suggests that monetary policies may have to be tighter than current market pricing suggests-more tightening or less/later easing-particularly in the case of the U.S., Canada, Norway and Australia, suggesting upside risks for USD, CAD, NOK and AUD vs. the rest of G10.”