30 December 2022
Rising prices continue to confound expectations that slowing global growth will ease inflation pressures. While the US Federal Reserve and other central banks are aggressively hiking rates to combat inflation, most drivers of today’s high inflation are outside of central banks’ control. The Russia-Ukraine conflict and the pandemic continue to disrupt fuel, food and goods supply chains, feeding high inflation and throttling global economies.

As we progress through the current hiking cycle, it is apparent the Fed still sees a bigger risk in hiking too little than in overtightening. As the path to a soft landing in the U.S. gets narrower, investors are naturally also concerned about collateral damage. Historically, a hawkish Fed has generated a number of headwinds for Asian economies, which has translated to weak asset performance. As pressures continue to mount, investors want to know if (1) Asian economies can withstand further pressure from a hawkish Fed and a stronger USD and (2) which economies are most vulnerable.