Macroscope | High interest rates will not become the new normal in 2023
- Interest rates may be up from their very low position a year ago, but that does not signal a permanent tightening of monetary policy
- Central banks know better than to sacrifice growth when inflation levels are already settling down
We are not in a global wage-price inflation spiral and all we are seeing is a normalisation of interest rates and a fluke opportunity for central banks to regain control of the yield curve and borrowing costs.
Central banks have been in crisis management mode for too long to change direction any time soon. There will be no return to the monetarist extremism of the 1980s as the present generation of central bankers in major economies lack the appetite for anything other than a gradual, managed recovery.
Stronger growth is still the priority over inflation risks. Inflation hawks are simply bluffing and wrong. The signs are that inflation risks are already receding, wage inflation seems reasonably muted and the need for higher interest rates is over.