Investors are concerned that inflation may be resurfacing, and they could be correct
After peaking at 11% in 2022, inflation in the developed world has been on a decline — until recently. With central banks lowering interest rates, headline inflation has risen from 2.1% in September to 2.5% in December.
Market sentiments are mixed about the potential return of high inflation. Expectations indicate that the Fed might pursue looser monetary policy soon, influencing other central banks as well. While falling government-bond yields suggest some relief regarding inflation fears, a model from the Fed’s Cleveland branch shows market expectations for next year’s inflation have increased from approximately 2.2% to 2.7%.
