WARNING: members of the public are being contacted by people claiming to work for AXA Investment Managers UK Limited.  Find out more information and what to do by clicking here.

Investment Institute
Macroeconomics

Life at the Peak


  • We expect the BoE after one last hike to join the Fed and the ECB on having reached “peak rates”
  • While the “Table Mountain” trajectory is less damaging to the economy than the “Matterhorn”, this is not a riskless strategy, while in the months ahead we expect the central banks to continue to “talk hawkish”

After delivering a well-crafted dovish hike last week, we think the ECB has joined the Fed in having reached “peak rates”, and we expect the Bank of England to apply to the club this week as well after one last 25 bps hike.

Still, all three central banks will make it clear they remain data dependent and will not hesitate to hike again if need be. Even in the US where the deceleration in core inflation is more advanced, the Fed cannot ignore some faint but uncomfortable signals that price pressure remains too strong. Jay Powell this week will need to “speak hawkish” despite staying put, and we expect the FOMC to maintain one additional hike for 2023 in its “dot plot”, even if we do not think they will need to act on it given our forecast of a quite mediocre end of year for US growth. There may also be some interesting changes in the FOMC’s assessment of the “long-run” policy rate. All this would prolong the market’s own moves these last few weeks with less cuts priced in for 2024. The market has not changed its pricing for the ECB by the end of next year, and we find the 50% probability of a rate cut already in March 2024 quite daring – we see the first rate cut there in June 2024 at the earliest (i.e., with a much lower than 100% probability).  

In principle, a “high enough for long” approach should be less damaging to the economy than an “always higher” trajectory which would then probably need to be followed by emergency cuts (a “Table Mountain rather than Matterhorn,” to use Huw Pill’s striking image) but unfortunately it is difficult to assess in real time if a central bank has not already gone too far. Given how the two economies are currently faring, it seems to us the risk is higher in the Euro area than in the US.

At the other end of the monetary spectrum, we expect the BOJ to continue to plough its own – very special – furrow with no change to policy or guidance this week.  

Download the article
Download report (611.17 KB)

Related Articles

Macroeconomics

Gilles Moec Macrocast: Dry Powder: Ready to Fire, or Collecting Dust?

Macroeconomics

Gilles Moec Macrocast: Fiscal Standoff

Macroeconomics

Gilles Moec Macrocast: Electrify Europe

    Disclaimer

    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.

    All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document.

    Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.

    Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales No: 01431068. Registered Office: 22 Bishopsgate London EC2N 4BQ

    In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.

    Risk Warning

    The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested.