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It has been proven time and again that hiking interest rates prematurely, or excessively, can cause markets to lose ground. When central banks turn hawkish, a finely balanced approach is what is needed. But often things do not turn out as predicted.
A renewed surge in inflation has caused jitters in markets as it coincides with central banks signalling an end to easy money policies and a commitment to hike interest rates next year.
Rising inflation is part of the reason. But up to now, markets have
believed the central bank mantra that higher inflation is the result of
recovering economies and would only be transitory. Therefore, central
banks will not increase rates should inflation moderately rise above
average levels of 2%.
