Every quarter, our GFICC senior investors gather to formulate a consensus view and a strategy roadmap for the fixed income markets3.
Our GFICC team believes that central bank policy, global growth and inflationary pressures have reached a major inflection point. Investors, based on individual investment objectives and risk appetite, could consider a diversified suite of income sources with active short duration4 management.
How transitory is inflation and what does it mean for central banks?
- We expect global growth has peaked and may decelerate in 2022. Gross domestic product (GDP) is expected to settle in at 4% in the US and 4.5% globally over the second half of 2022, supported by the employee’s return to job market, inventory rebuild and China’s credit impulse, which measures the growth of new financing as a part of its gross domestic product.
- Though high demand for goods, rising wages and home prices are pushing US inflation higher, we expect to see a peak in inflation in the first quarter before going down to 2.25%-2.5% on core personal consumption expenditure (PCE) by end-2022 as some signs of easing good supply constraints have emerged.
G4 central bank policy rates and market expectations5
5. Source: J.P. Morgan Asset Management; (Left) FactSet; (Right) Bloomberg L.P. G4 are the Bank of England, the Bank of Japan (BoJ), the European Central Bank and the US Federal Reserve. *Expectations are derived from the 3-month moving average of the overnight index swap (OIS) forward rates. Past performance is not a reliable indicator of current and future results. Forecasts and estimates are indicative, may or may not come to pass. Data reflect most recently available as of 31.12.2021.
- The Federal Reserve (Fed) is tapering its large-scale asset purchases and the beginning of first rate hike could ease inflation gradually. Both the Bank of England and Bank of Canada are likely to start raising rates ahead of the Fed while the European Central Bank has signaled its first rate hike is likely in 2023.