Market heavyweights say interest rates may stay higher for longer amid structural economic changes and a higher long-term inflation rate, as the global economy adjusts to a new normal.’s business summit on Monday, former treasurer Peter Costello, who is also chairman of Nine, owner of this masthead, said markets were probably too optimistic in their view that interest rates had peaked, and that there was a risk central banks would not start cutting rates as fast as markets were pricing in.
In January, Costello said that while inflation was easing, it remained outside the Reserve Bank’s target band of 2 per cent to 3 per cent and that strong labour markets, wage pressures and high energy prices were stillBlackRock global chief investment strategist Wei Li said the long-term inflation rate would probably settle at a higher annual rate than in the past. “Three is the new two in this environment,” she said, noting rates were likely to stay higher for longer.
“We’re going from the old normal to the new normal, from the old regime to the new regime,” she said, describing the era between the 1980s and before the pandemic as a period with steadily increasing production capacity and reasonably predictable financial markets.Despite the uncertainty and volatility, equity markets have been optimistic about the prospect of interest rate cuts in Australia, pricing in two rate decreases this year, firstly in August.
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