Are capital markets flying in the danger zone?

THE big question for markets today is whether the US Federal Reserve can successfully bring inflation down to target while keeping the rate of economic growth above zero. The path to achieving this is narrow.

If Fed policymakers underestimate the strength of the US economy, we may face an extended period of above target inflation, tighter monetary policy and probably sharply lower stock markets. If they overestimate it, we may face a recession and a pause or even a cut in interest rates.

At the same time, we face uncertainty from tight commodity markets as the war in Ukraine continues. Countries around the world are grappling with securing supplies of food commodities. China’s lockdown policies are driving concerns around global supply chains and demand.