If the Boomtown Rats were interested in economics they might have sung “I don’t like Tuesdays”.
For the world’s most-influential central bank and one which used to enjoy that privilege separately met lawmakers on Tuesday and sang the chorus line of higher interest rates.
Janet Yellen, chairman of the U.S. Federal Reserve Board and Mark Carney, the governor of the Bank of England, both indicated rates are about to get hiked.
UK interest rates will rise gradually over the next two years Carney told MPs yesterday, playing down the chance of another rate cut.
Meanwhile Yellen told Senators in Congress that forward guidance would soon drop “patience over rates” which has been the language since December. That change in lingo could come as soon as at the March Fed meeting and Yellen signalled a hike could come swiftly afterwards. The most hawkish predictions are for a June hike.
In all U.S. rates have been anchored at zero for over six years. UK rates at 300-year-lows of 0.5% for six years next month.
Quite apart from whether the global economy is ready, and some signs parts of Asia are limping, the most significant consequence of rate rises for borrowers lulled into leveraging on “easy money ” for years will be the entire recalibration of the money markets and wider economies.
As I have argued before the “outbreak of peace” could be bitter to swallow.
