A note from analysts at JP Moran on developed market central banks apparently having reached the top of the rate hike cycle, or at least in a 'pause'. However, adds JPM, the promotion of a 'higher for longer message from the Banks is a worry for markets.
- Our "boiling the frog" narrative incorporates a tension between near-term forces promoting resilience and the seeds being sown for an eventual end to the expansion.
- This resilience promotes sticky inflation and a need for sustained restrictive policy stances that should, in turn, compress profit margins and erode balance sheet health.
- Timing the point at which building vulnerabilities spark an end to the expansion is difficult.
- The Fed's forecasts last week embraced both sustained growth resiliency and disinflation in projections that presented a genuine soft-landing scenario.
- However, the overriding message received by markets from DM central banks is that policy rates will need to remain high-for-long—a signal that aligns with our boiling-the-frog outcome.
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As an aside, this whole boiling the frog thing is silly. The myth is that if you stick a frog in a pot of cold water and gradually bring the pot to boil the frog will not jump out and hence will die. Frogs are not this stupid. Will jump out when the water gets uncomfortable. Unlike many traders/investors/hodlers.
