Do not rule out a central bank U-turn

Even if central banks raise their interest rates faster than financial markets expect in response to inflation, it is important to bear in mind the possibility that they could rapidly change their minds and return to a less restrictive monetary policy. In contemporary economies, a ris e in interest rates may have a much greater negative effect on the real economy (activity and growth) than in the past, due to: High debt ratios (public and private); The high level of wealth and therefore wealth effects; The debt leverage built up during the period of low interest rates; High asset valuation . A faster-than-expected rise in interest rates could therefore have a highly negative effect on real activity.