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BlackRock Inc. vice chairman Philipp Hildebrand said other major central banks should follow the US Federal Reserve and tolerate inflation overruns.
Hildebrand, a former head of the Swiss central bank, said markets were trying to “find their way” under the new policy framework of the Fed, which last week raised inflation estimates for the next three years. He said other policymakers, including the European Central Bank, are likely to “somehow” adopt a similar new framework.
“I guess we’ll see a trend that says we’ve been underestimating inflation for many years,” Hildebrand said in an interview with Bloomberg TV on Monday. “Now we are accepting some overshoots to compensate for that over time. The question will become how many exceedances and for how long.
Fed officials stepped up the expected pace of monetary policy tightening last week, with a majority forecasting two interest rate hikes by the end of 2023. The 30-year US Treasury yield fell below by 2% on Monday for the first time since February, as investors speculated that the tightening would reduce inflationary pressures.
“It unfortunately took a while for the markets to adjust to the new framework, and I think we’re still testing the waters on this,” Hildebrand said. “I guess that will set in as we move forward and the market realizes that the Fed has a new framework and that the new inflation projections are very much in line with this notion of overshoot.”
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