(Bloomberg) -- Bloomberg Economics' model shows that if the European Central Bank had fully bought-in to the transitory inflation narrative, it would respond to a hit to income by loosening monetary policy, guiding markets to a later lift off for interest rates and lowering risk-free lending rates at longer maturities. Instead, what we see is that markets have brought forward expectations for rate hikes and the whole yield curve has shifted upward -- a climb that in part probably reflects the reduction of virus-related tail risks as the year progressed and the global economy improved. But the shift may also flag a deeper challenge that central banks face: forward guidance may no longer be working as it used to.
Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.
©2021 Bloomberg L.P.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
