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Published on Monday, March 8, 2021

Global | Tolerance to higher rates

The increase in long-term interest rates has generated some anxiety in the markets, but this should not pose a threat to global growth.

Key points

  • Key points:
  • Interest rates began a moderate upward trend in the summer when there was also a strong rebound in economic activity, a trend that has accelerated following the announcement of the huge fiscal package announced by the new US administration (9% of GDP).
  • The new US fiscal stimulus has sparked intense debate. Accredited (and traditionally favorable to fiscal stimulus) academics such as L. Summers and O. Blanchard are warning of the risk of an overheated US economy and rising inflation.
  • In the markets, inflation expectations have increased (to around 2% in the US) and, recently, the real rate component has also increased. This means that the upward movement of rates is understood as a process of a degree of normalization in line with economic recovery and (let us not forget) with the significant increase in the supply of public debt.
  • Unlike the famous taper tantrum of 2013 (which had a big impact on international markets), the current rate movement has had nothing to do with announcements of withdrawal of monetary stimuli by the Fed. For now, the Fed is patient and showing no concerns neither over inflation nor over the increase in interest rates.
  • Current interest rate levels should not pose a threat to global growth, as they have not significantly tightened financing conditions. However, there are some elements that must be monitored.

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