Columbia Threadneedle Investments: Market Perspectives: The fog of war and monetary policy

Key Takeaways

• The prospect of further escalation in the Iran war has put global central banks in a quandary over the future path of interest rates.
• Four major banks met last week and, although no action was taken, the talk was distinctly hawkish, with ongoing elevated oil prices adding to the unease.
• The expectation is now for three rate rises this year by the Bank of England and the European Central Bank in order to counter any inflationary pressure coming through after the initial energy price shock.
• The cure for high oil prices is high oil prices, which will eventually slow the economy and drive a deceleration in demand, which could also allow central banks to potentially cut rates.
• But uncertainty is the biggest issue as of now, with neither central banks, politicians or oil traders having any real idea what comes next.