Chart Book: The Inflated Reality

What would it take to cut rates?

HSBC’s 118 page Global Economics Report came out today. Here are some excerpts and charts focusing on global inflation, housing, supply chain updates, and Fed policy.

Most interestingly, they try to handicap what it would take to reverse the rate hikes. The key question seems to be “Will they make the same mistake made in the 1970s of lowering too soon?

The inflated reality

Central banks are saying they will do whatever it takes to tame inflation and are certainly becoming more convincing. But, while their actions may have taken a bite out of the prices of equities, credit and anything crypto, and they are forecasting a steady decline in inflation, they have not taken much of a bite out of their GDP or employment projections.

Mostly they are still forecasting a fairly benign outlook: a “Goldilocks” scenario of inflation returning to target with relatively little impact on economic growth. Given the array of broad-ranging supply and demand uncertainties facing the global economy, this seems somewhat optimistic to us.

US housing sales have slumped but prices are still rising even as prices start to fall in some of the biggest house price boom countries.

And US consumers keep spending on some key categories in particular

That means that aggregate consumer spending may continue to be resilient even as lower income people – whether low-paid workers not seeing above-inflation wage gains or those relying on benefits or pensions not linked to inflation – have to curtail any discretionary spending.

As real wages fall, some households will be confident enough to dip into savings while others are seemingly increasing their borrowing

Much More at bottom