Financial conditions do not appear yet to have tightened enough

It is no longer an easy call that financial conditions need to tighten further to drive demand growth down to near the economy’s potential growth rate, which is near 2%. By most accounts, conditions have now tightened at least somewhat, and aggregate demand growth does appear to be coming off the boil.

However, tightening-required remains the base case.  And it leaves intact the view that short rates are likely to rise a bit more quickly than the forwards imply, even now.