18 February 2022
Frances Donald, Global Chief Economist & Head of Macroeconomic Strategy

Major central banks worldwide are becoming increasingly hawkish in response to rising inflation, and markets are interpreting that as a sign that interest rates could get much higher sooner. Will they follow through?
Central bank hawks swooped across the globe in recent weeks. The Bank of England (BoE) hiked interest rates for the second time in three months on February 3 amid inflationary concerns. Notably, four out of the nine members of the bank’s Monetary Policy Committee voted for a 50 basis points (bps) hike. This after the Bank of Canada (BoC) signaled on January 19 that a rate hike in March was effectively a done deal.
Incidentally, the European Central Bank (ECB), which is widely seen as the last remaining dove among global central banks, also struck a significantly hawkish tone at its rate-setting meeting (also on February 3) on the back of unexpectedly high European inflationary data released the day before. The ECB’s Governing Council said it has “unanimous concerns” about inflation, and ECB President Christine Lagarde declined to confirm—as she had done in previous press conferences—that “interest-rate hikes are very unlikely” this year. The market reacted accordingly: European yields jumped, the yield curve flattened, and the spread between German and Italian yields widened aggressively.¹
Meanwhile, on the other side of the Atlantic, several U.S. Federal Reserve (Fed) members emphasized that a March rate hike was certainly in play, although many pushed back against a 50bps move, and a few—including Philadelphia Fed President Patrick Harker—noted that four rate hikes this year could make sense, validating what markets have priced in so far. Indeed, Fed officials seemed undeterred by market volatility.
Yet, these central banks’ rosy outlooks and seeming urgency to lift rates are out of sync with how we expect the global economy to develop in the coming months. As we highlighted in our 2022 outlook, we expect to see a material growth slowdown in the first half of 2022. The key ingredients for slowing growth are all there: significant fiscal tightening, declining liquidity, tighter monetary policy in emerging markets, the lagged impact of a slowing China (in 2021), lower Purchasing Managers’ Indexes, and a weakening U.S. consumer. These factors are likely to produce uncomfortably low growth just as central banks communicate their policy normalization plans. Problematically, while we expect inflation to fall back precipitously in the second half of the year, it likely won’t fall far enough to enable these global central banks to change their messaging until well into the second quarter.
Synthesizing what we’ve heard from central banks with our own high-conviction views, we end up with five key central bank themes for the next six months.
There are many good reasons why central banks are keen to normalize monetary policy; however, whether they can implement their plans at the pace they intend to will ultimately depend on how rapidly macroeconomic conditions change.
1 Bloomberg, as of February 8, 2022.
Global Multi Asset Diversified Income Strategy (GMADI) update: A balanced approach to market volatility
Global equity markets have recently experienced sharper movements, particularly in areas linked to artificial intelligence (AI). Earnings announcements from AI hardware, semiconductor and large cloud-computing companies have been key sources of volatility. Concerns about potential interest rate hikes have added to uncertainty. The Global Multi Asset Diversified Income (GMADI) Strategy has not been immune to these market movements. However, its income focus, broad diversification and relatively defensive positioning may help limit the effect of sharp changes in technology and growth-related investments.
Global Equity Diversified Income (GEDI) Fund: Staying selective through market volatility
Global equity markets have recently experienced greater volatility. Much of this has been driven by earnings announcements from AI hardware, semiconductor and large cloud-computing companies. Concerns about potential interest rate hikes have also added to investor uncertainty. After a prolonged period of strong performance in AI-related areas, market expectations have become demanding. Even companies reporting solid results have experienced sharp share-price moves when their outlook has only met, rather than exceeded, investor expectations. Against this backdrop, the GEDI Fund remains focused on its core objective: generating income while maintaining diversified exposure to potential capital growth.
Real assets and the infrastructure behind AI
Artificial intelligence (AI) is often positioned as a story of models and applications, but its growth depends heavily on something far more tangible. Real assets such as data centres, power grids, and raw materials form the physical that supports AI development. As structural forces reshape the investment landscape, real assets are emerging as an enabler of the AI buildout.
Global Multi Asset Diversified Income Strategy (GMADI) update: A balanced approach to market volatility
Global equity markets have recently experienced sharper movements, particularly in areas linked to artificial intelligence (AI). Earnings announcements from AI hardware, semiconductor and large cloud-computing companies have been key sources of volatility. Concerns about potential interest rate hikes have added to uncertainty. The Global Multi Asset Diversified Income (GMADI) Strategy has not been immune to these market movements. However, its income focus, broad diversification and relatively defensive positioning may help limit the effect of sharp changes in technology and growth-related investments.
Global Equity Diversified Income (GEDI) Fund: Staying selective through market volatility
Global equity markets have recently experienced greater volatility. Much of this has been driven by earnings announcements from AI hardware, semiconductor and large cloud-computing companies. Concerns about potential interest rate hikes have also added to investor uncertainty. After a prolonged period of strong performance in AI-related areas, market expectations have become demanding. Even companies reporting solid results have experienced sharp share-price moves when their outlook has only met, rather than exceeded, investor expectations. Against this backdrop, the GEDI Fund remains focused on its core objective: generating income while maintaining diversified exposure to potential capital growth.
Real assets and the infrastructure behind AI
Artificial intelligence (AI) is often positioned as a story of models and applications, but its growth depends heavily on something far more tangible. Real assets such as data centres, power grids, and raw materials form the physical that supports AI development. As structural forces reshape the investment landscape, real assets are emerging as an enabler of the AI buildout.