Nash: That is slowly bubbling out of the curve again. Central bank forecasts go up and then back down again, so conveniently inflation will be back to target within a year. After the last CPI prints, inflation is bubbling along the curve and is looking problematic, which means they will have to change as real rates are far too low. They can rally on the back of Putin, but that rally will not last because inflation is creep- ing up. Freedman: If you look at what is priced in, the Fed is still behind the curve. In New Zealand, yields are rising so the market will continue to test what is priced in. Nash: Does the curve invert without recession risk? Thomas: In the UK, yes. In the US, I don’t know. Nash: My general view is that things are good. Rates are rising and so we are seeing a rotation in risk markets, a re-pricing of credit. Do not confuse that volatility with a recession, but the problem is we have this inflation growth mix going on. The inflation part of that is getting worse, which contributes to the volatility. It will calm down. The global economy is in good shape. I am trying to stay reasonably long risk, but, on the other side, I am short in credit.
This is not leading down a path to recession. It is just that in the near term, inflation is causing more volatility. Freedman: Even if there is a recession, it is a technical term for
negative growth. It does not necessarily mean there will be a jump in bankruptcies. Due to the response to Covid, it feels like we are back to boom and bust. We might be in a technical recession, but it does not mean it is a disaster for higher leveraged parts of the world. Clissold: I am nervous about central bank independence. There has been a lot of pressure on them from politicians about quan- titative easing. It will not take a lot of pain for governments to review what their central bank’s mandate is. Reedie: It is an interesting point in terms of the sheer amount of money thrown at the problem. The baton has been passed from monetary to fiscal policy. That is a significant change in the political and intellectual backdrop around how you respond to cycles and challenges.
Look at who is steering the ship. The ex-head of the Fed is in charge of the Treasury, an ex-politician is in charge of the Euro- pean Central Bank and the ex-head of the European Central Bank is in charge of Italy.
There has been a de-siloing. A central bank’s remit being mon- etary policy and fiscal being thrashed out in cycles has gone. Fiscal is now the primary economic stimulant and monetary is the brakes. And they are late on brakes.
There are many reasons to continue deploying fiscal policy. You have almost given the keys of the henhouse to the fox, in
Just buying carbon credits has not advanced the carbon change
cause. Huw Evans, BESTrustees
12 April 2022 portfolio institutional roundtable: Fixed Income
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