The BOE is everything the Fed fears it will become

First, the BOE was hesitant. Second, they certainly seem to bottle up the tightening cycle as they paint a rather bleak picture for the UK economy. But this playbook might not be something on its own at the end of the day.

While inflation continues to rage or at least seems more persistent, this could very well be the case for the US economy when we reach Q3 or Q4 of this year. The question then becomes, what will the Fed do next?

With rising inflationary pressures and a slowing economy, the BOE is struggling to find a balance in the fight against the former without making the latter worse with tighter policy.

Even the BOE’s chief economist, Huw Pill, earlier admitted this sentiment:

“It’s a delicate balance to control inflation without slowing growth more than necessary. And the arguments around setting rates to achieve that balance are pretty finely balanced on their own.”

If that doesn’t sound like a policy maker losing faith in the tightening cycle, then I don’t know what is.

As such, the Fed’s main concern is that it may be following the same path as the BOE, but with a few steps behind. To judge this, economic data will be essential. Any higher inflation reading and weaker economic activity will start to trigger stagflation risks and this could very well make the Fed fearful that it is becoming the next BOE.

Only time will tell how this all pans out, but it’s definitely a case scenario that shouldn’t be ruled out.


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