Tight Financial Conditions Tilt Risks From Inflation To Growth

The Iran war has caused a reversal in interest rate expectations, leading to market-driven tightening that threatens growth. This 'back door' restrictive policy reduces the necessity for central banks to deliver full projected rate hikes.

Key Takeaways

• 1.Market-driven expectations for interest rate hikes following the Iran war have tightened financial conditions even without explicit central bank action.
• 2.Risks to the economy have shifted from inflation towards growth due to restrictive lending terms and higher fixed-rate corporate and home loans.
• 3.The transmission of higher rates varies by region, with the UK being most sensitive due to short-term mortgage structures, while the US is more insulated.

Table of Contents

• About turn
• Investors do the heavy lifting
• Real economy effects
• Differing transmission
• Growth risk outweighs inflation risk
• Disclaimer
• Remarks regarding foreign investors
• United Kingdom
• United States of America
• Copyright
• Contacts

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