Interest rates may have to rise sharply to fight inflation
But the low-rate era is unlikely to come to a permanent end
JEROME POWELL, the chairman of the Federal Reserve, once compared setting interest rates to celestial navigation. Today, as inflation spikes, there is a growing sense that the Fed has lost its way. It looks as if it is about to make an abrupt change of course by tightening monetary policy hard and fast. That prospect has battered stockmarkets and led many firms and homeowners to wonder if the era of low rates might be over for good.
The reality is more complex. In the short term the Fed does indeed need to get a grip. But, as we explain, in the long run the world’s ageing population will keep a cap on interest rates. That points to an unpleasant financial squeeze, rather than a return to the 1970s.
This article appeared in the Leaders section of the print edition under the headline “How high will interest rates go?”
From the February 3rd 2022 edition
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