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BOE and The Fed 

  • As long as inflation remains high or appears to be on the rise, the US economy could be in trouble by the third or fourth quarter of this year. The question now is what the Fed will do next. Is the Fed’s path going to be similar to that of the BOE? 
  • First, there was hesitancy on the part of the BOE. They appear to be squeezing the tightening cycle by painting a rather bleak picture of the UK economy. However, at the end of the day, this playbook may not be sufficient on its own. 
  • With rising inflationary pressures and a slowing economy, the Bank of England is attempting to strike a balance in combating the former without exacerbating the latter by tightening policy.
  • Huw Pill, the BOE’s chief economist, previously admitted to feeling this way: ” “It is a difficult balancing act to keep inflation under control while not slowing growth too much. And the debates over where rates should be set in order to achieve that balance are themselves quite finely balanced.” 
  • •If that doesn’t sound like a policymaker losing faith in the tightening cycle, I’m not sure what does. 
  • As a result, the Fed’s main concern is that it may be on the same path as the BOE, albeit a few steps behind. Economic data will be crucial in determining this.
  •  Any higher inflation readings and weaker economic activity will start to spark stagflationary risks, raising concerns at the Fed that it will become the next BOE. Only time will tell how this all plays out, but it is certainly a scenario that should not be ruled out.

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