John Fahey: Why core inflation will be a key determinant for rate decisions

Stress in the banking sector could see a further tightening of credit conditions

Positive economic data has seen some renewed firming in market rate expectations over the last fortnight. Picture Denis Minihane.

It is a tricky balancing act for central banks in trying to engineer a slowdown in economic activity to lower inflation, by tightening monetary policy, without going too far in hiking rates, and having an even greater contractionary impact on demand. 

The IMF, as well as the OECD, amongst others, continue to warn about this risk, with the possibility that ‘sticky’ core inflation and tight labour markets could necessitate even higher rates.