Six reasons why central banks cannot raise interest rates sharply – CentralBanks Equities UnitedStates Eurozone Banks
e in equity markets. But there are many reasons why central banks are likely to be more cautious today than in the past, leading to much smaller rate hikes, analysts at Natixis report.“The much higher level of public debt ratios than in the past means that a rise in interest rates would worsen public finances markedly more than in the past.”
“Central banks now have numerous objectives linked to real activity: obtaining a high employment rate to reduce inequality, obtaining high potential growth to reduce debt ratios. A restrictive“Recent developments show that wage indexation to prices remains low. This means that inflationary surges push down real wages and therefore weakens domestic demand, which exempts central banks from having to do so.
“If inflation comes from negative supply shocks, it is completely counterproductive to raise interest rates, as this hike in interest rates discourages investments that could loosen this supply constraint.” If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
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