He also felt the central banks should have been hiking rates last summer, so they’re now being aggressive about addressing inflation, given that it’s climbed to over 8%.
“I think the big change is just how aggressive they need to be and for how long and the commodities pullback, and that’ll mean that the pain should be a lot shorter than some expected, and that would be good news for our markets” he said.
Given that the Bank of Canada was announcing its next rate hike today and the U.S. CPI numbers were also being released today, “he said, “things can change quickly, but it feels like the market is starting to feel a little more comfortable that central banks are getting closer to neutral than they have been in awhile.”
When asked whether he expects the central banks to continue to hike rates, Taylor said the Fed wants to bring its rate closer to the CPI rate, which won’t return to 3%-4% anytime soon. If it can reach 4% by year-end, he said the Fed rate could top at 3.%, to provide a tighter spread.
Taylor said the central banks probably want to raise their interest rates so that, when the next crisis comes, they’ve got something to cut. He was more concerned about Europe, which hasn’t started tightening its rates yet, and the rising U.S. dollar, which is “becoming the next big problem for risk assets and that could have an impact on corporate earnings for multinationals.”
