The Saturday Economist Friday Forward Guidance ... This is our Friday Forward Guidance for Friday 4th March. Every week we update our scenario forecasts for base rates in the U.S. UK and Europe over a three year period. We also include our expectations for inflation, as an input to the central bank reaction function, in the Saturday Economist updates.
Our forecasts are unchanged this week. We expect base rates in the U.S. and the U.K. to rise to 1.50% by the end of the year increasing to at least 1.75% to 2.00% in 2023.
Markets are mixed on the impact of the war in the Ukraine. Higher inflation and lower growth will ensue. The question is how will central banks react. This week, the Bank of Canada increased base rates by 25 basis points to 0.50%, in a move to get ahead of rising inflation. Fed Chair, Jerome Powell offered further insight. Speaking before the House and Senate committees he said "The Russia - Ukraine war has added uncertainty into the outlook but we still see interest rates coming in a series of quarter percentage point increases".
U.S. ten year yields slipped, trading at 1.78% this morning. UK ten year bond yields also moved lower trading at 1.28. It's a flight to safety as the challenges of war unfold. We still expect the big U.S. move once the Fed purchases end in March. 2.00 and 1.50 our short term target U.S., U.K split with a 50 point spread.
Equities were in the red this week. Commodity prices soared. Oil trades at $110 Brent Crude, Sterling moved lower against the Dollar at $1.3313. Don't miss The Saturday Economist out tomorrow. We try to make sense of the madness in Ukraine.
Don't miss Our Monday Morning Markets, out on Monday. We reckon US markets remain some 7% over extended ... European stocks and Asian markets look over sold ...
This week, David Malpass, president of the World Bank Group and Krista Lina Georgieva, IMF managing director, said they were “deeply shocked and saddened” by the war and “stand with the Ukrainian people through these horrifying developments”.
Andrey Kortunov, foreign policy analyst and adviser to the Kremlin said "I am depressed, I think many of us are depressed" as events unfold in Ukraine.
Personally, I feel shocked and saddened and depressed. "It's like watching a 1930s news clip". The annexation of a sovereign state, millions of refugees fleeing across Europe, a dictator unchallenged at home, the west prepares for war ...
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