Key Points
Central banks from most major developed economies closed out 2023 with a blitz of policy meetings in December that effectively shut the books on the aggressive rate hikes that have dominated the economic and financial landscape since 2022..
The lone outlier, the Bank of Japan (BOJ), never managed to kill off its negative rates policy and signaled this week at the year's final meeting of a Group of Seven central banks that a shift away from that stance was not imminent...
After starting the year with annual inflation rates that were on average 3.7 times the 2% target shared by the U.S. Federal Reserve, European Central Bank (ECB), Bank of England, Bank of Canada and BOJ, the pace of price increases is now down to 1.5 times that target...
Central bankers are loathe to declare victory prematurely and are battling with over-eager financial markets to retain maximum optionality, prompting the drum beat of pledges to hold rates high for a longer period or raise them again if necessary - the latter in particular being seen increasingly as an empty threat...
And as the year closed, a potential new spoiler was emerging that could complicate the rate-cut thesis: Attacks by Iran-backed Houthi rebels on cargo vessels in the Red Sea forced shippers to halt or reroute traffic, a supply chain hiccup that could impede further swift progress on inflation..
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