IMF First Deputy Managing Director Gita Gopinath says financial markets are “somewhat optimistic” about the path of central bank interest rates as core inflation remains high, “I still think that they’re off a bit on the duration for which they’ll have to keep rates high,” she says on “Bloomberg Surveillance.”
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Do you worry about the markets and I know you don’t look at the markets in send out, but there seems to be a bias in the markets that actually inflation is coming down and that central banks will be ready to not hike as much as
Maybe they will. So is there a danger that the market is mispricing something that will then create an event and the markets have been off since the start of this year? I mean, if you look at their expectations of the policy rate part in some countries, especially the US, they
Were expecting three rate cuts this year for U.S. Fed policy and they have adjusted they’ve come back now to recognizing that, no, we are here for longer than was expected. So I think markets have been very optimistic and I suspect they’re still somewhat optimistic about the path for interest rates.
What does I most misunderstand? Is it the fact that interest rates have to remain higher for longer, which Christine Lagarde actually laid out beautifully in her speech, that they have to rise higher than expected? I think it’s the how long they’re going to stay at that.
I think that’s the part where there is a disconnect between the markets and what central banks are signaling. And so far, it’s markets that have had to correct two, the central bank parts as opposed to other way around.
So I still think that they’re off a bit on the duration for which they’ll have to keep rates high.