Economic Update June 2022
The global growth outlook continues to soften, with rampant inflation and the withdrawal of the extremely accommodative monetary settings. Policy tightening is the correct course, but it will be challenging to navigate the withdrawal of stimulus and there is a material risk of a policy overshoot. This environment has seen yields rise and equities fall, putting pressure on the returns of traditional equity/bond style portfolios.
The question for markets now is whether we have reached peak inflation and monetary policy tightening expectations. Central banks will be hard pressed to shift to more dovish rhetoric against the current backdrop and there will need to be unambiguous price signals over the next few months to precipitate a central bank pivot.
In Australia, the Reserve Bank of Australia (RBA) began the process of removing monetary policy accommodation in May, raising rates by 25 basis points to 0.35%. This is the first episode of monetary tightening since November 2010 and comes after the period of exceptionally stimulatory settings that were appropriate for the pandemic. The RBA has now moved away from what was relatively dovish rhetoric centred on ‘patience’, with recent communications setting the stage for further monetary tightening in coming months.
About the author
Alex Joiner, PhD
Joined in 2016
Alex Joiner is Chief Economist at IFM Investors. He is responsible for the firm’s economic, financial market and geopolitical risk analysis that is key in IFM’s investment process. In this capacity he engages with IFM’s domestic and global clients on macro-investment trends and themes. He is a frequent commentator on economic and markets via traditional and social media and regularly speaks at public forums and conferences. He has over two decades of professional experience in economic and markets and prior to joining IFM was the Chief Economist at Bank of America Merrill Lynch (Australian & New Zealand) after being a senior economist at ANZ Bank. He holds a First Class honours degree in Economics and a PhD in Econometrics from Monash University. Alex is also committee member of the Australian Business Economists.
About the author
Frans van den Bogaerde, CFA
Joined in 2019
Frans supports the Chief Economist with the firm’s economic, financial market, and policy analysis and forecasting. He holds a Bachelor of Commerce (Finance & Economics) with Honours in Finance (First Class) from the University of Melbourne. Prior to joining IFM Investors Frans was undertaking his Honours degree and was a researcher with the Brain Mind and Markets Lab at the University of Melbourne.