Within the last twenty-four hours, the three largest economy's central banks have increased rates by 25-50 bps and the largest of them has announced an asset reduction program. All this has been done to fight against the huge spike in inflation that has been getting firmer by the month.
For some time now central banks have been preparing the investors and other financial stakeholders for the ultimate fight that has begun. This might be sounding very dramatic but there is no other way that the current phase we are entering can be better explained.
The crude oil prices have remained well above $100/bbl. for the past two months and the gas prices are also moving up. There has been no amount of slowdown in the conflict between Europe and Russia. These issues, additional issues are China lockdowns that are hampering the availability of goods further.
All these factors are leading to further price hikes that will bee larger than previous ones and irreversible in medium term. This means that inflation figures in the summer will be more damaging.
Being aware of this and more central banks have started attacking with a level of aggression that has not been witnessed before by many investors. Will it be sufficient to bring inflation down without backing the economy?
The answer is no, it has never happened and never will. Such aggression is not bringing inflation down but destroying the demand and that would not happen until there is a hard landing with a recession never seen before. This would lead to another round of wealth shift and of course quantity easing at a level that would be new to all of us despite the one we just exited.