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Moneycontrol Pro Weekender | Testing times 

This is going to be a year when all these theories on ‘transitory’ inflation, monetary policy tightening, durability of growth and soft landing for markets will be tested 

January 15, 2022 / 10:14 AM IST

Dear Reader,

The World Bank’s flagship publication, ‘Global Economic Prospects’ says global growth will decelerate in 2022 and 2023 as the effects of the extraordinary stimulus, both monetary and fiscal, start to fade. In accordance with that view, it expects commodity prices and inflation to gradually decline in the second half of the year, as supply bottlenecks ease and commodity prices come down.

The question though is: If growth is going to come down and inflation to moderate, for how long will the US Fed and other developed country central banks continue with their current predilection for tightening the monetary policy?

That is why many market mavens believe the US Fed will do another pivot or a pirouette or simply not raise rates much, which could explain the rather blasé reaction of the markets to the news that retail inflation in the US has reached 7 percent, the highest level in four decades.