The COVID-19 pandemic made it abundantly clear that central banks had the tools, and were willing to use them, to counter a dramatic fall-off in global economic activity. That economies and financial markets were able to find their footing so quickly after a few downright scary months in 2020 was in no small part because of monetary policy that kept bond markets liquid and borrowing terms super-easy. Now, as newly vaccinated individuals unleash their pent-up demand for goods and services on supplies that may initially struggle to keep up, questions naturally arise about resurgent inflation and interest rates, and what central banks will do next. Vanguard’s global chief economist, Joe Davis, recently wrote how the coming rises in inflation are unlikely to spiral out of control and can support a more promising environment for long-term portfolio returns. Similarly, in forthcoming research on the unwinding of loose monetary policy, we find that central bank policy rates and interest rates more broadly are likely to rise, but only modestly, in the next several years.
Source: Vanguard
