BlackRock's Hildebrand says central banks may align on inflation

[NEW YORK] BlackRock Inc Vice Chairman Philipp Hildebrand said that other major central banks are likely to follow the US Federal Reserve and tolerate inflation overshoots.

Mr Hildebrand, a former Swiss central bank chief, said that markets are trying to "find their way around" the new policy framework of the Fed, which last week raised inflation estimates for the next three years. He said that other policy makers, including the European Central Bank, are likely to "one way or another" embrace a similar new framework.

"My guess is we will see a trend saying we have undershot inflation for many years," Mr Hildebrand said in a Bloomberg TV interview on Monday. "Now we are accepting some overshooting to make up for that over time. The question will become how much overshooting and for how long."

Fed officials last week accelerated their expected pace of monetary-policy tightening, with a majority projecting two interest-rate hikes by the end of 2023. The 30-year US Treasury yield dropped below 2per cent on Monday for the first time since February, as investors speculated that the tightening will clamp down on inflation pressures.

"It's taken unfortunately some time for the markets to come around and embrace the new framework, and I think we're still testing the waters on that," said Mr Hildebrand. "My guess is that this will settle down as we move forward and as the market understands that the Fed has a new framework and the new inflation projections are very much aligned with this notion of overshooting."

BLOOMBERG

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