Market expectations that the Federal Reserve and the European Central Bank will start raising interest rates by the end of this year, or early in 2010, are likely to be wide of the mark, says Michael Schubert, economist at Commerzbank.

“Central banks are aware that, given their very expansionary monetary policies, they must not wait too long before tightening, so as to avoid laying the foundations for the next bubble,” he says. “But the current situation is still too fragile for swift rate hikes, as part of the foreseeable recovery is likely to be due to temporary effects such as the end of inventory reductions or the impact of fiscal impulses.”