‘Nationalizing bond markets’ left central banks unprepared for inflation, top HSBC economist says

• Central banks around the world have hiked interest rates aggressively over the past year in a bid to rein in soaring inflation, after a decade of loose financial conditions.
• “Part of the problem with QE was the fact that you’re basically nationalizing bond markets. Bond markets have a very very useful role to play when you’ve got inflation, which is they’re an early warning indicator,” HSBC Senior Economic Adviser Stephen King told CNBC’s Steve Sedgwick.

The prolonged period of loose monetary policy after the global financial crisis equated to central banks “nationalizing bond markets,” and meant policymakers were slow off the mark in containing inflation over the past two years, according to HSBC

Senior Economic Adviser Stephen King.

Central banks around the world have hiked interest rates aggressively over the past year in a bid to rein in soaring inflation, after a decade of loose financial conditions. The swift rise in interest rates has intensified concerns about a potential recession and exposed flaws in the banking system that have led to the collapse of several regional U.S. banks.

Speaking to CNBC at the Ambrosetti Forum in Italy on Friday, King said that while quantitative easing had benefited economies trying to recover from the 2008 financial crisis, its duration meant that governments were “probably far too relaxed about adding to government debt.”

“Part of the problem with QE was the fact that you’re basically nationalizing bond markets. Bond markets have a very very useful role to play when you’ve got inflation, which is they’re an early warning indicator,” King told CNBC’s Steve Sedgwick.

R&I – TxPAT