March Global Macro Monthly - The great rate debate
- Growth rebounds remain virus and vaccine dependent. The outlook is solid in US and good in the UK. Euro area prospects are hampered by vaccine management. Japan is also overseeing a slow inoculation programme. The pace is mixed across Emerging Markets.
- Fiscal stimulus is super-charging the US outlook but creating uncertainty over inflation. Headline inflation will rise globally across 2021, but a sustainable return to central bank inflation targets is unlikely next year outside the US or EM’s with loosely anchored expectations.
- Central banks reflect local conditions. The Fed has pushed back on premature tightening; the ECB promised additional PEPP purchases. But EMs with inflation pressure and volatile FX have started to raise rates.
- Bond yields have risen in the US and are having spillover effects elsewhere. Other asset classes are following reactions in real rates space.