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Hartnett: Central Banks Are Giving Up On Rate Hikes, "Locking In" Structurally Higher Inflation

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by Tyler Durden
Saturday, Apr 22, 2023 - 06:00 PM

There isn't a lot of new ground covered in Michael Hartnett's latest Flow Show (last week's topic was the start of the 4th USD bear market in the past 50 years), in which he instead turned to official policy - or rather policy mistakes - and their impact on inflation, asset allocation and EPS.

Picking up where Christine Lagarde left off in her "astounding" speech, namely the very strong hint that central banks are already actively considering raising inflation targets just as soon as they are done with the current tightening cycle, Hartnett notes that the world still has high core inflation + low unemployment + negative real policy rates; yet almost all central banks on hold/close to end of rate hike cycle thus “locking in” high inflation (as is trajectory of government spending, deficits & debt). In short, back to square one only this time baseline inflation will be materially higher hence the need to redefine what "normal" inflation is.

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