Home Markets Don’t believe the boys who cry ‘interest rates to rise’

Don’t believe the boys who cry ‘interest rates to rise’

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Our annual rate of wage growth hasn’t exceeded 3 per cent since March 2013 – more than eight years ago, long before the pandemic – so you see why the Reserve’s “central scenario” is that getting back to it is likely to take several years yet.

For much of this year, however, the financial markets have thought they knew better that the Reserve governor. And nothing he said last week persuaded them he might know more about his likely decisions than they did.

There was little change in futures market prices showing they expect a rate rise in a year’s time – July 2022 – and another in the first half of 2023.

Why do the markets think they know better? Well, because the world’s national financial markets are now so highly integrated, traders probably spend more time thinking about the global market leader, the US economy and Wall Street, than they do about our economy. And they’re always tempted to follow a simple decision rule: whatever…

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