Bank of America: Central banks are expected to remain focused on fighting inflation

The Bank of America said that the surprise rate hikes by the Australian Fed and the Bank of Canada this week show us that they are fully aware of the risk that inflation may be more sticky than expected. The Australian Fed and the Bank of Canada should have stayed put. Other central banks are likely to follow suit. We expect central banks to remain focused on fighting inflation and leaning towards a hawkish stance. 

Given that inflation remains so high, employment is so strong, markets have responded relatively well to tightening and the banking shock in March was contained, we see no reason for central banks not to do so. 

So far, the economy has not shown any signs of a "break" in central bank policy, and most likely, something will have to "break" for inflation to be sufficiently reduced. The risk with this view is if some central banks, especially the Fed, are hesitant to show signs of weakness in the data. In our view, this would lead to a policy error as it affects the necessary landing and leads to a discontinuity in rate hike policy.