Central banks are on the brink of victory in the fight to bring the global surge in inflation back under control, the Bank for International Settlements said on Monday.
There was cause for "cautious optimism", according to the latest quarterly report from the BIS, which is often dubbed the central bankers' central bank due to its regular behind-closed-doors meetings of the world's top monetary policymakers.
"Central banks have taken decisive action and thus prevented inflation from becoming entrenched," the BIS's Monetary and Economic Department head Claudio Borio told reporters. "At the same time, economic activity has been remarkably resilient and the financial system has held up well."
The BIS has been gradually becoming more hopeful about the outlook. At the end of last year it said progress in beating back inflation had been encouraging, but stressed at that point that central banks were not out of the woods.
While there was the usual caution that risks remain, Borio noted this time how the "daylight" had narrowed significantly between when markets expect interest rates to start falling again and what the big central banks have been signalling.
"The fact that financial markets have converged on central bank views suggests that, on this occasion at least, central banks had a better appreciation of the risks," Borio said.
The report also looked at the stubbornness of inflation and what neutral borrowing rates where they are neither too loose or too restrictive - or "r*" in economist speak - were likely to be in the wake of the COVID-19 pandemic and as deglobalisation and aging populations reshape economies.
It concluded that inflationary pressures could become more stubborn as services industries increase their weight in economies, while r* could now be higher, although gauging it was fraught with uncertainty.
It was such a "blurry guidepost" in the current context that "it is going to be very difficult to utilize it in a very concrete way when we conduct monetary policy," Hyun Song Shin, the BIS's Head of Research, added.
There was a partial warning too about the turbo-charged rise in heavyweight tech stocks, especially those linked with the rise of artificial intelligence.
U.S.-listed Nvidia (NASDAQ:NVDA), which makes the chips that power AI software, has seen its shares surge another 66% this year following a near 240% leap in 2023. Meta, which owns Facebook (NASDAQ:META), is up nearly 140% over the last 15 months too.
"Whenever you have big changes or prospective changes in technology you get these huge runs of enthusiasm that propel the market to extreme height. We may be seeing that again," Borio said.
With many other markets also rallying sharply this year, though, investors were seeing "a very, very soft landing ahead" for the big economies, he added.
