What's The Biggest Risk That Central Bankers Are Worried About In 2023? Find Out

Reserve managers are reportedly considering above-target inflation as the biggest risk this year, according to a survey of 83 central banks carried out by Central Banking Publications.

What Happened: The survey showed that 70% of respondents cited inflation as the biggest risk, in the poll published Sunday, according to a Bloomberg report. Geopolitical risk was cited as the second-biggest worry, it said.

At the same time, markets and other indicators point towards a fall in inflation expectations going ahead, at least in the U.S.

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A broad-based measure of inflation expectations compiled by the Federal Reserve declined last quarter to its lowest level in almost two years, reported Bloomberg, citing data supplied by the central bank on Friday. The index of common inflation expectations stood at 2.22% at the end of last quarter, having fallen from 2.31% on Dec. 31, 2022.

This was the third straight quarterly fall in the index after it touched 2.39% in the second quarter last year, the report added.

Price Action: Equity markets are also appearing to be dismissive of the case that high inflation will continue to persist with year-to-date returns still remaining in positive territory. The SPDR S&P 500 ETF Trust SPY has gained over 8% while the Invesco QQQ Trust Series 1 QQQ has risen over 19% since the beginning of the year.

Furthermore, optimism surrounding expectations that the Federal Reserve will pivot from its rate hiking cycle has pushed the S&P 500 Information Technology Index up 19% in 2023 compared with a 7.7% gain for the S&P 500 Index, according to a Bloomberg report. This is the strongest start to a year for the index relative to the S&P 500 since 2009.

However, last week, two Federal Reserve officials reiterated the need for more interest rate hikes to rein-in inflation just as the central bank is set to enter a silent period from April 22 to May 4, ahead of its next monetary policy announcement.

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