BAKU, Azerbaijan, August 11. The outlook for global economic growth remains downside, while Europe is expected to fall into recession, Trend reports, citing Capital Economics, UK-based research and consulting company.
The company forecasts to see both some renewed increase in bond yields and weakness in “risky” assets over the rest of this year.
Capital Economics agrees with the idea that US inflation will fall quite sharply over the next 1-2 years, and that this will eventually allow the Fed to move to a rate cut. However, the agency expects the Fed funds rate to reach a slightly higher peak, and the easing cycle to begin later.
Regarding the correct pricing for bond and equity markets, and the US inflation to be brought back around its target much needs to be done, Capital Economics said.
“Investors seem to be of the view that a sharp but short-lived tightening cycle - with the Fed funds rate rising to a peak of approximately 3.75 percent in early 2023, but being cut quite rapidly from around the end of the first quarter - will be enough to bring US inflation back to around the Fed’s 2 percent target. Judging by the recent resilience of analysts’ expectations for corporate earnings, and the gains in equity markets, many appear to be anticipating that a sharp Fed pivot will also limit the damage to the economy. This may help to explain why the S&P 500 has rebounded of late even as the US Treasury yield curve has continued to invert,” the report added.
---
Follow the author on Twitter: @mariiiakhm