Interest rates are beginning to rise around the world as central banks work to rein in inflation that’s soaring to heights not seen in decades.
When the U.S. Federal Reserve raised rates in 1994 it achieved a soft landing for the U.S. economy, but sparked economic crises in Mexico, Asia and Russia that lasted the rest of that decade, writes Neil Shearing, chief economist at Capital Economics, in a note this morning. These days emerging markets, which have cut their reliance on foreign borrowing, are at much less risk of Fed tightening.“You don’t need to look far for evidence of froth in the residential property market,” says Shearing, with global home prices running well above their trend in what looks “alarmingly similar” to the run-up to the 2008/2009 financial crisis.
But if rates rose a bit further than economists expect, say to 4%, or even lower if quantitative tightening had a bigger impact, it would be enough to cause a drop in prices in the U.S. and U.K.
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