GlobalLast week’s failure of a US bank and growing fears about the underlying health of the world’s broader banking sector have dominated the financial headlines in recent days. A trend toward risk aversion has clearly been in the ascendancy. And central banks are now under growing pressure to offer targeted support and more generally to halt their tightening campaigns in order to restore financial stability. For while banks’ funding models and regulatory oversight are now being actively discussed, a key root of the present crisis concerns the synchronized – and relatively aggressive – campaign from central banks to squeeze out inflation. In our first two charts this week we illustrate how financial stress has been building and how markets have re-assessed their expectations for Fed policy in recent days. Our next two charts, however, illustrate how those expectations have been shifting in ways that are somewhat counter to the global economic scene. Still, at the margin, incoming data over the last few days suggest that labour market activity and inflation have continued to cool, which should alleviate the current dilemmas for policymakers. Our fifth chart, showing high frequency indicators of hiring activity, offers one example of that trend. Our final chart, showing how global air passenger traffic appears to be slowing down as well, is also possibly a sign that COVID-related distortions to the world’s economic fabric (and their inflation implications) are now normalising as well.
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