Recession – but no central bank rescue

Thoughtful commentary from our partners at BlackRock:

No ignoring trade-off

Central banks confront the growth-inflation trade-off, with the Federal Reserve seeing recession but no rate cuts. We agree – and prefer inflation-linked bonds.

Market backdrop

Bank stocks remained under pressure last week. The two-year U.S. Treasury yield slid further as the market priced in a series of Fed rate cuts.

Week ahead

We’re watching inflation data on both sides of the Atlantic this week for further signs of it staying elevated, while monitoring the ongoing banking sector woes.

The central bank trade-off between crushing activity or living with inflation is now impossible to ignore as economic damage and financial cracks emerge. That was evident in the Federal Reserve’s forecast of recession this year and sticky inflation in years to come. Central banks have clearly separated responses to the banking tumult and kept hiking rates. We see a new, more nuanced phase of curbing inflation ahead: less fighting but still no rate cuts. We favor inflation-linked bonds.

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