Here we come to the second possible scenario, one in which the economy remains resilient to tight monetary policy and higher real interest rates, due to a combination of the loose financial conditions (including high asset prices and tight credit spreads), a still elevated level of excess liquidity, tight labour markets – and thus high wage growth – due to ageing societies and the economic policy of reshoring.

A growing number of economists are wondering what the point would be of cutting interest rates quickly and sharply, and whether or not this entails too great a risk of resurgent inflation – especially against a backdrop where the Chinese economy is heavily stimulated and showing signs of increasing growth. This suggests that commodity prices will remain in an uptrend for now. This, in turn, must be combined with the following:

• The global economy has turned from deflationary to inflationary due to deglobalisation, increasing import barriers and tight labour markets.

• If growth is not going to fall back, labour markets will remain tight enough for wage increases to accelerate rather than decelerate.

All things considered, one might indeed wonder whether too much risk with respect to wage increases and inflation would be taken if central banks were to start with sharp rate cuts before too long.

A combination of both scenarios is perhaps the most likely outcome.

Growth in the European economy is picking up slightly and there is little indication that growth in the US is going to slow markedly to below 2-2.5%. Furthermore, it would not be surprising if commodity prices started to rise and import barriers were raised even further.

Finally, if growth continues to hover around current levels, the labour market will remain tight for the time being. However, a comment is merited in the case of the US.

Until recently, the Fed assumed roughly 0.5% workforce growth and 1.3% productivity growth. However, a recent study showed that the workforce is currently increasing by about 1.2% due to the return to work of people who had stopped working during the corona pandemic, but mainly due to far higher-than-expected immigration. Potential growth is therefore higher at around 2.5%.

This means that, under the current conditions, growth below 2.5% will cause rising unemployment as well as downward pressure on wage increases and inflation. But chances are high that, regardless of who wins the November election, immigration will soon be restricted to a far greater extent. Also, the return to the labour market of people who had left it during the corona pandemic concerns a one-time issue. Hence, we see potential growth gradually returning to around 1.8% from the end of this year.

Growth in the economy must then move below this level if the downward pressure on wage increases and inflation is to persist. Consequently, the number of rate cuts may well fall short of expectations for the time being.