The impact of Central Banks’ hawkish policy

  • Given that rising inflation across developed economies appears to be widespread and entrenched, policy rates at the Fed, the ECB, and the BoE are all moving up. The most likely outcome of the forceful central bank policy responses to increasing inflation remains shallow recessions across developed markets. However, there is a significant chance that a financial market contagion will start a more severe recession.
  • As investors fled British fixed income markets in the wake of the new fiscal policy announcements, yields on U.K. government bonds, also known as «gilts”, were on track for their biggest monthly increase since 1957.
  • On Wednesday, the Bank’s Financial Policy Committee decided to take immediate action after acknowledging that the malfunction in the gilt market constituted a significant risk to the nation’s financial stability, as financing conditions would become tougher and the amount of credit flowing into the real economy would decrease.
  • The first gilt sales, originally scheduled for Monday, will now take place on October 31st in accordance with the Monetary Policy Committee’s aim of a yearly £80 billion ($85 billion) decrease of its holdings of gilts, according to the bank.