Breaking bad
In many respects, we’ve lived through an unprecedented few years.
The enormous fiscal stimulus deployed around the world - combined with the brutal supply shocks - led to a burst of inflation as the world reopened.
Perhaps that was the inevitable cost of the shutdowns.
Too much, too fast
With the benefit of hindsight, many are saying that central banks should have started lifting interest rates sooner.
Maybe that’s so…with hindsight.
But it’s also questionable whether that would’ve made any meaningful difference to, say, timber shortages, or spiraling freight costs.
The monetary policy response to the spike in inflation has been rapid and brutal.
But now things are demonstrably breaking, with banks coming under severe pressure all over the place.
Wild swings
The volatility in bond markets over recent days has been almost beyond belief, which is not typically a sign of good news.
The US 2-year Treasury yield finished another wild trade at around 3.84 per cent overnight - it was above 5 per cent only a matter of days ago.
Australia’s yield curve is also now pointing to lower interest rates over the next few years.
More volatility is to be expected ahead, but the narrative around the need for lifting interest rates has been broken.
