How long can the world’s borrowers hold on as higher interest rates bite?
“Rising interest rates are killing me,” says Kelly, who runs the kennel with her husband and adult children. “I have to find ways to cut this because if we don’t, we’re not going to survive another winter.”
Seared by the failure in analysis and communication that led to erroneous calls that inflation would prove transitory as prices spiked in 2021, Fed officials these days aren’t giving much away when it comes to their longer-term rates view. Powell has led officials in saying it’s too early to tell exactly where inflation and rates will settle once the economy normalizes.Article content
In contrast with America, where most home borrowers are on 30-year fixed rates, more than 70% of home loans in Australia are tied to variable rates that move largely in line with central bank levels. With household debt averaging about 190% of disposable incomes, each of the Reserve Bank of Australia’s interest-rate hikes has ratcheted up the pain on mortgagees.Article content
The debate is especially relevant in the UK, which has seen some of the highest rates of inflation among major economies in the wake of Covid.Holiday park owner Stanyer saw the first virus lockdown in 2020 as an opportunity to scale up his business. As the price of vacation lodges fell, he snapped up a couple more, adding to his collection nestled across a cluster of fields in the picturesque county of Cumbria.
A March speech at the London School of Economics by Bank of England Governor Andrew Bailey may have given Stanyer some hope. Bailey said it wasn’t unreasonable to expect the UK’s neutral interest rate would “remain low” due to weak productivity and an aging population.
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