The economic headlines in recent days make for sobering reading. Last week, Russia halted the flow of gas through the Nord Stream 1 pipeline to Europe, compounding an already crippling energy crisis facing the continent, which is fast sliding into recession. China is still battling Covid-19 outbreaks in all 31 provinces with new lockdowns in major cities - the latest being Chengdu. But probably the most consequential of all was the Aug 26 message delivered by United States Federal Reserve chairman Jerome Powell at the annual central bankers' gathering in Jackson Hole to the effect that the Fed will double down on its commitment to fight inflation through continued increases in interest rates and "will keep at it till the job is done".
In his to-the-point, eight-minute speech - which was unusually short - Mr Powell put paid to speculation that the Fed would soon pivot to a more moderate stance, which had fuelled a brief rally in equity and bond markets over the last month. After his speech, the markets promptly tanked, anticipating a longer rate hiking cycle, which could continue well into next year. Mr Powell was candid about the likely collateral damage from tighter financial conditions, including a sustained period of below-trend growth, softer labour market conditions and some pain to households and businesses. There was no indication given of when the rate hikes would taper off.