Oliver Mangan: Interest rates likely to rise more than markets expect in early 2023
The ECB indicated rates will have to rise significantly more at a steady pace to reach levels that are sufficiently restrictive, and then be held there to ensure a timely return of inflation to its 2% target.
Markets could be in for more pain in 2023 after central banks re-asserted their inflation fighting credentials last week. In particular, both the US Federal Reserve and the European Central Bank signalled that markets have not built in enough rate tightening for next year and are too optimistic on the timing of a shift to policy loosening.
Both central banks revised up their inflation forecasts for 2023, which is expected to prove more persistent than previously anticipated. Their clear message was that rates will need to rise by more than markets expect and policy will have to remain restrictive for a prolonged period of time to return inflation back to its 2% target.
