Rising Interest Rates Bring Pain and Uncertainty
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Interest rates have risen sharply from record lows and may stay high for a prolonged period. This will have far-reaching consequences for households, companies, and governments.
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Higher interest rates will make borrowing more expensive. This will eventually hurt households through higher mortgage rates and falling house prices. Companies will also face higher borrowing costs.
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Banks and other financial institutions face losses on their bond holdings and other fixed income assets as rates rise. This could cause turmoil in the financial system.
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With high debt levels, governments will struggle to keep deficits under control as interest costs rise. More fiscal belt-tightening may be needed.
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It's unclear if higher rates reflect optimism about future growth or are due to high government debts sopping up savings. This will determine whether higher rates boost incomes or are painful.