There were clear indica-tions that the pace of tightening is set to slow with policymakers putting more emphasis on the substantial rate increases a heady delivered and has h monetary policy impacting eco-nomic activity and inflation. The RBA has already downshifted to 25 by rate moves, and the BoC surmised markets by dialing back to a 50 by increase in October. Despite striking a hawkish tone, the Fed opened the door to a sower pace of tightening at upcoming meetings, while the ECB softened in language on future tote increases. We think the BoE's larger hike in November pass as one-off with policymakers continue to push back against the aggressive policy path priced into markets.
Recent economic data has been firmer than expected, though we continue to look for a softening backdrop into year-end with Canada and the US likely to see only modest GDP gains in Q4 and the UK and euro area likely to record declines. Each of these economies is expected to enter recession in the coming months if they're not already there. Given our generally below consensus economic forecasts, we think central banks will ultimately under-deliver relative to market expectations, which should see government bond yields peaking in the near-term. That said, more persistent inflation that forces policymakers to continue tight-eying further into 2023 remains a key risk (upside for rates, downside for growth)next year. - RBC
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