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• Our central case is that the Federal Reserve has the ability to ringfence financial stability concerns
• Higher funding costs for small and regional banks are likely totighten US financial conditions via the credit channel, wherelending standards were already being tightened due to monetarypolicy
• While we expect growth to slow over Q2, we expect noimmediate recession given momentum in consumption, a stronglabour market and little disruption to lending from large US banks
• We expect the growth impact from the excess credit tightening(i.e. that above monetary policy) to be relatively small (c.0.5pp)with a two quarter lag. Coupled with previous tightening, weexpect a mild recession in Q4
• A moderation in shelter inflation should slow US inflation, butstrength in wider service inflation and employment should pushthe Fed to do a final hike in May
• Euro area disinflation should continue but we expect core inflationto remain elevated, leaving the ECB hiking through the quarter,reaching a terminal of 3.5%. We also see one more rate hike fromthe BoE, but expect the BoC and RBA on pause from here
• We expect Japan to exit yield curve control in June and change itsrate guidance to a neutral (from dovish) stance
• We expect China to grow strongly over the quarter, driven by arecovery in consumption and a fading drag from the propertysector. However we still expect inflation to remain low andmonetary policy to retain a small easing bias
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