Morgan Stanley remains hawkish:
An old chestnut in commodity markets is that “the cure for high prices is high prices.” Prices don’t rise in perpetuity because ultimately they reach a level of price tolerance, which is followed closely by a drop in demand. Demand destruction then exerts a gravitational pull on inflation. This process isn’t unique to commodity markets. The gravitational pull from falling demand is precisely why the Fed is embarking on a policy tightening cycle to slow the economy.
Today’s geopolitical climate has led to even higher energy prices, adding to the burden of inflation in an already painful environment for many households. Central banks in inflation-fighting mode must decide whether to prioritize inflation or growth. Investors this week have been divided on whether the Russia/Ukraine conflict will lead to more tightening from the Fed to battle inflation, or less tightening to battle the economic fallout.