At first glance, rising inflation may seem like a relatively simple problem to fix. Central banks, such as the Bank of England and US Federal Reserve, would raise interest rates to curb demand for goods and services. This would, other things being equal, lead to a lower rate of inflation.

This was a quiet week with US markets closed on Thursday for Thanksgiving. However, news broke overnight about a new Covid-19 variant. This led to a sell-off in markets as investors consider the potential new travel restrictions and lockdowns. This is a reminder that life will take time to get back to normal and indeed that normal may have evolved.

We’ve reached the end of what has been an incredibly quick business cycle. Are there only negative surprises to come?
Growth has recovered, and it’s strong. Inflation is at a 20-year high. We are now at the peak of the business cycle. Is it all downhill from here?

This weeks US inflation report once more beat expectations as reported inflation in the US continued to rise, now sitting at 5.4% year over year. Recent weeks have seen the debate over transitory vs persistent inflation being resolved, with major company’s such as Bank of America’s CEO stating “Inflation is clearly not temporary”.

The last months have taught us that market sentiment can hinge on the smallest miscue. A pause, redundant adverb or glance in the wrong direction can send the market into a frenzy. These days, Federal Reserve announcements are as much about stage management as they are hard economic policy and Wednesday’s meeting was no different.

Some stability returned to markets this week as central bank remarks which aimed to alleviate some of the tensions caused by last week’s Federal Reserve meeting seemed to have the desired effect. Signs that the Fed might be slowing down its bond buying programme or even beginning to discuss rate rises caused some volatility last week. Worries that faster inflation might speed up policy tightening seemed to fade following central bank remarks