Ultra-cheap money let companies raise vast amounts of capital in 2021, a boom that will not be repeated
This hawkish shift is the most important among many to have taken place in the world’s central banks in recent months. But it has only recently begun to bite in asset markets. After reaching a vertiginous high of nearly 40 times earnings at the turn of the year, thehas been just as striking, reflecting investors’ struggle to digest the consequences of tighter money.
The effect of higher rates on the real economy is slower-burning and harder to anticipate. . Homebuyers have assumed big mortgages as house prices have soared. Distressed firms have taken advantage of government-backed loans. Government debt-to-ratios have ballooned, because of large, sustained deficits in the rich world and a collapse in growth in many emerging economies.
As they aim for a narrow landing strip, central banks also face high winds, because of the risk of war in Ukraine and uncertainties associated with the pandemic. Economists are struggling to forecast how many people who left the workforce in 2020 will eventually return—and the more that do, the less the chance that a damaging wage-price spiral will take hold.
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