Will interest rates stay higher for longer? The rise in global bond yields suggests that’s the way investors are leaning. Central banks, having been wholly ignorant of inflationary dangers, now have a serious credibility problem with regard to getting it back under control. Their only remaining policy option is to hike interest rates which is why the yield on U.S. 10 year Treasuries recently hit a 16 year high while the German equivalent simultaneously achieved a 12 year peak. This is hardly going to aid the cause of economic growth but that’s what happens when monetary policy is placed in the hands of box-ticking committees with little experience of the real world.
Events in the Middle East have compounded an already delicate energy situation. Furthermore, the Northern Hemisphere winter beckons and any cold snap is likely to aggravate inflation by driving oil/gas prices higher. The Canadian/U.S. economist, J K Galbraith, noted that pessimism was the sign of a superior intellect. We humbly hope he was correct but as per our long-held position, we expect no help from lower interest rates or energy prices in the near future.