Markets are entering an era of global, multi-year interest rate hikes to combat inflation, Societe Generale says

The "Great Melt" is an era in which global central banks will be raising interest rates to fight inflation.

The "Ice Age" theory he formulated for the global economy in the 1990s is no longer valid. It was believed that deflation would overtake the global economy and cause long-term bond yields to fall to zero and cause a collapse in stocks.

He wrote that the "Ice Age secular theme of lower lows and lower highs in Fed Funds and bond yields has already been broken in this cycle."

Bob Prince says that we are currently in the first phase of a multi-year secular tightening cycle to address the effects of combining monetary and fiscal policy in a reckless fashion. Bob notes that investors have discounted only one cycle.

There is a new secular upward march in both short and long interest rates. The upward slope in rates will only be temporarily relieved by a global recession. He said a drop in commodity prices should make headline consumer price inflation rates negative in 2023 and give the Fed an excuse to slash interest rates and even resume quantitative easing.

The Fed will try to squeeze inflation out of the system by either tightening or easing.

The fed funds rates have been raised four times by the Fed in the last five years and investors are pricing in a 50 basis point increase in September. Consumer price inflation in the US is well above the central bank's target. Headline inflation rose to 8.5% in the year through July, slower than the 9.1% rate in June.

The Fed raised its rate in July. In July alone, central banks in major developed and emerging markets around the world raised their interest rates by over a thousand basis points.