World growth prospects remain “very strong” and are unlikely to be derailed by recent financial market volatility, but the balance of inflation risks is shifting, with implications for monetary policy, says Fitch Ratings in its latest Global Economic Update.
“Economic slack is diminishing rapidly, and against a backdrop of an even stronger global recovery last year than we thought, market concerns over inflation and forthcoming monetary policy adjustments have risen,” says Brian Coulton, Fitch’s chief economist, in a statement.
“This has sparked a rise in global bond yields and significant equity market volatility. But we see this primarily as a correction to an overly sanguine view on the U.S. interest rate outlook rather than signalling any serious threat of a sharp economic slowdown,” Coulton adds.
Additionally, rising oil prices adds further upside risk to headline inflation, the Fitch says.
As a result, the U.S. Federal Reserve Board is “increasingly likely” to raise rates four times in 2018.