Editorial: Tough job

Nick LargerDealing with high inflation and low growth is a tough job for central banks. Inflation requires higher rates, while low growth needs the boost of lower rates. Add the challenge of maintaining financial stability into the mix, and the job gets even tougher. 

On March 22, markets were eagerly poised to see what central banks in the UK and US would do when they announced interest rates later that day. The Bank of England was processing unexpectedly higher inflation, while 12 days earlier, the Federal Reserve had a close brush with financial instability after the collapse of Silicon Valley Bank.

At the start of the year, the economic outlook was looking better than at the end of 2022 for many people, including Colin Purdie, a chief investment officer at Aviva Investors. Purdie tells us the bearish narrative around New Year has changed, but inflation still poses a risk to investors. Certainly, the UK numbers showed this.

Meanwhile – to illuminate the issues with withdrawing cheap money when financial instability is a concern – we can perhaps look to the famous Warren Buffett quote about ebbing tides revealing naked swimmers. Maybe it is right to fear that SVB, and a cohort of other financial businesses, merely heralded the start of wider problems.

Nick Fitzpatrick, Group Editor, Funds Europe

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