Why have a sophisticated view of central bank behaviour?
In our opinion, financial markets have an overly sophisticated view of central bank behaviour . They believe that they have multiple objectives, that they are reluctant to curb growth and drive up unemployment, that they want to boost investment, particularly in the energy transition, and that they want to enable expansionary fiscal policies. But is the reality not that once central banks are convinced of the reality of inflation, they have only one simple objective: to bring inflation back to the level of the inflation target within a reasonable time frame? This requires a much greater hike in central bank interest rates than is expected, particularly in the euro zone and the United Kingdom. It is also important to take into account that bringing inflation back to 2% takes time, and is therefore also not compatible with a rapid downturn in interest rates after their initial rise, which is also what financial markets expect.