The first step is the most difficult

This week, the Fed moved into an active anti-inflation phase with the first rate hike since 2018 and, above all, a clearly-stated intention to normalise rates as quickly as possible, with another ten rate hikes planned by the end of 2023. The Fed’s rhetoric shows a real fear of inflation becoming entrenched through price-wage loops. The markets’ reaction was interesting: while the Tnote curve naturally flattened, the strong performance of the equity markets seemed somewhat incongruous with the Fed wanting to exceed the neutral rate in the next twelve months... As if they were relieved that the Fed is finally acting against inflationary pressures. With this in mind, the pressure for the ECB to apply a similar remedy can only become stronger.