Well, the data releases over the past few weeks are challenging that assumption. Inflation is surfacing again and accordingly the magnitude of interest rate increases could be a lot larger. Central banks across the world have started to respond with around 82 central bank tightening steps in all counted over the past few months. The Fed seems all set to abandon its hitherto gradualist monetary tightening approach and will probably raise rates by 50 basis points at its May 16 policy-setting meeting. Such a move would take US rates to six per cent.
Research shows that there s something ominous about short-term interest rates hitting six per cent.
The problem though, as pointed out often these columns, is that the dire consequences of even aggressive monetary tightening never seem that apparent at the start of a bear market and it s in keeping with the past to see markets apparently shrug off bad inflation news. Bull markets just don t die out. Even after the first crack the market tries its best to stage comebacks, only that every comeback is weaker before there is major capitulation that manifests itself in the form of big one-day crashes. Only that every rally back was more anaemic and progressively made lower tops. Also worth remembering is that the Fed then started raising rates at the beginning of the year and the market kept rallying till August.