The Iran war is reviving fears of stagflation — high inflation coupled with sluggish growth — for the global economy.
Investors “have had to increase their probability of the worst-case scenario,” a portfolio manager said, as rising oil prices trigger an energy shock and risk blunting growth momentum. The concerns caused government bond yields globally to soar. The conflict poses a challenge for central banks, which could risk fueling inflation by cutting interest rates, but risk dampening growth by doing nothing.
Traders now see the US Federal Reserve trimming the cost of borrowing only once or twice this year, with the first cut not happening until September.
