The European Central Bank is set to begin a new era of monetary policy this week, shifting the focus of policy toward dealing with the threat of runaway inflation. Based on new expectations, coupled with record price rises, President Christine Lagarde and her colleagues will end the trillion-euro asset purchase program and pave the way for an exit from eight years of negative interest rates. The spike in consumer prices, which has already reached more than four times the 2% target level, is alarming enough, and the outlook beyond the short term to look further ahead would support such a shift. Their forecasts are likely to show that inflation will not fall below the target level again until the end of 2024. These new quarterly figures will for the first time fully reflect the impact of the Russo-Ukrainian war, which will have a lasting impact on energy and food costs regardless of when it ends. The new reality will suggest that the conditions for an ECB rate hike will eventually be met - making it join the queue of rate hikes by the Federal Reserve and other central banks. "With a forecast like this, they can demonstrate that all three conditions for opening the exit from stimulus have been met," said Karsten Junius, an economist at J Safra Sarasin. "They can really close the old chapter and go on to face new challenges." 

The OECD said the world economy will pay a "heavy price" for the Russia-Ukraine war, including slower growth, higher inflation and potential long-term damage to supply chains. the OECD released its economic forecast in Paris on Wednesday, lowering its global growth forecast for this year to 3 percent from the 4.5 percent projected in December and inflation forecast for its 38 member countries doubled to nearly 9 percent. The OECD warned that the cost of war "could be even higher" and described a range of risks, from a sudden cut-off of Russian supplies to Europe to the fragility of financial markets. "The global economic environment has undergone some significant changes in recent months, including the global spread of omicron mutant strains and higher-than-expected persistent inflationary pressures," the organization said in its economic outlook. "The biggest change, however, is the economic impact of the Russian-Ukrainian war." 

According to Nobel laureate Robert Shiller, there is a "high probability" that the U.S. economy will fall into recession due to "self-fulfilling prophecies" as investors, businesses and consumers become increasingly concerned about a downward spiral. "This fear could lead to reality," said Shiller, who is currently a professor at Yale University. With inflation accelerating and the Federal Reserve increasing its efforts to curb it, fears have risen that the economy could shrink. Some corporate executives have sounded the alarm, and stock prices have plunged. And a growing number of Americans say the economy is headed in the wrong direction. All of this could lead consumers and businesses to become more cautious, sowing the seeds of a recession. Shiller sees a 50 percent chance of a recession sometime in the next two years, "much higher than normal." 

Wall Street's top regulatory official has outlined a series of plans to overhaul U.S. stock market rules that pose a major conflict with some of the biggest names in stock trading. Gary Gensler, chairman of the U.S. Securities and Exchange Commission, said he has asked the staff to consider reform initiatives to make the stock market more transparent and fair to retail investors. His plans could directly affect the way brokerage firms such as Citadel Securities, Virtu Financial Inc. and Robinhood Markets Inc. handle large volumes of retail trade orders. the reform plans Gensler outlined would require two votes by the commission to take effect. If adopted, the plans would be the biggest overhaul of the U.S. stock market in more than 15 years and the agency's most direct response to the wild trading of GameStop Corp. and other Netflix stocks last year. 

Former RBA governor Ian Macfarlane said Australia's inflation and interest rates are likely to "rise sharply". "I would be surprised if inflation fell back to 2 percent," Macfarlane said at a Morgan Stanley event on Wednesday in response to a question about whether price increases would return to the RBA's 2-3 percent target. "3, 4 or 5% is much more likely. Obviously, the central bank rate would have to be raised significantly." Macfarlane, who served as RBA governor from 1996-2006, said the central bank was right to raise the cash rate by 50 basis points to 0.85 percent on Tuesday, twice the expected increase. It was the biggest rate increase since 2000, and Australia thus joined more than 50 other monetary authorities, including the U.S., that have raised rates by at least 0.5 percentage points this year.

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