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As underlying inflation readings continue to surprise to the upside few central bankers are patient enough to allow the long and variable lags of monetary policy.

With inflation so high, is there an opportunity to lock in yields now? Join Artemis’ head of fixed income on this webinar where he will present his views.

The Fed raised interest rates by 75 basis points in its June policy meeting, acknowledging continued upside surprises on inflation, inflation expectations and wage growth. It also de facto abandoned forward guidance. It was a reminder that economic data eventually rule the day, says Franklin Templeton Fixed Income CIO Sonal Desai. She argues this is a welcome but only partial move to a more realistic stance, and discusses why further hawkish surprises likely lie ahead.

The recovery from the Covid crisis continues, with global activity now exceeding its pre-pandemic peak. However, this rapid rebound has already run into supply constraints in many sectors and economies, leading to a surge in global inflation. Some of these demand-supply imbalances should ease over the coming quarters, helping to cool price growth. But it’s hard to escape the conclusion that Covid has permanently damaged the supply side of the global economy, implying a less favourable trade-off between growth and inflation.

Over the past 18 months, the term ‘Goldilocks’ has increasingly been used to describe the global economic climate – neither too ‘hot’ to cause rampant inflation, nor too ‘cold’ to fall into recession.