Unit 4 · Level 1 · Central banks
2022: the great hike
For a decade, money was nearly free. Then inflation surged (US CPI hit 9.1% in mid-2022, euro area over 10% that autumn) and central banks slammed the brakes. The Fed went from near 0% to over 4% within a year; the ECB followed from negative rates. Fastest hiking cycle in four decades, and things broke.
Free to play. No ads, no token, no account needed to start.
What you get asked
Why did central banks hike so aggressively in 2022?
With inflation running five times the 2% target and expectations at risk of unanchoring, waiting looked more dangerous than braking hard.
Put the 2022 sequence in order.
Note step four: bonds fell WITH stocks. The classic diversification playbook failed in 2022 precisely because rates were the thing moving.
What was an early casualty of 2022's rapid hikes?
In September 2022, UK pension funds' leveraged bond strategies (LDI) spiralled as gilt yields spiked, and the Bank of England had to intervene within days. Months later, Silicon Valley Bank fell to bond losses too.
In 2022, US policy rates went from near 0% to over ___ in about a year.
Roughly 0% to 4.5% by December 2022, topping out above 5% in 2023. Speed, not just level, is what caught leveraged players out.
2022's big lesson for investors was…
Global stocks and bonds both fell double digits (bonds' worst year in decades) while housing cooled across Europe. When the price of money jumps, nothing priced in money hides. 🐜
The rest of this unit
The people who set the price of money: their mandate, their tools, and their words.