Morgan Stanley IM: 2H 2023 Outlook – From Whatever it Takes to Whenever it Breaks?
Jim Caron, Co-Lead Global Portfolio Manager and Co-Chief Investment Officer, Global Balanced Risk Control Team, shares his macro thematic views on key market drivers.28.06.2023 | 08:20 Uhr
2H 2023 Outlook: From Whatever it Takes to Whenever it Breaks?
- ECB President Draghi said "whatever it takes" referring to the ECB's
commitment to ease policy sufficiently in response to the financial
crisis.
- Perhaps "whenever it breaks" is more to the point - and we should
ask if central banks are equally committed to tightening policy to head
off an inflation crisis.
- In the June 12 Caron's Corner I noted that central banks will decide
between the two based on the balance of risks between growth and
inflation.
- Today, policy seems to be siding with growth, i.e. a soft landing,
which means inflation may run hotter for longer and keep real rates low
or negative, stimulative for risky assets. A virtuous cycle.
- But this can't go on forever. The balance of risks may tip to become
more aggressive about inflation, especially if it becomes
unanchored. And recall, unanchored inflation is my greatest fear.
- This will be the key debate amongst policy makers in 2H 2023.
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