Financial trends 2023

Interest rates around the world are rising at an alarming rate, with central banks concerned about increasingly entrenched inflation and convinced that this is not a series of transitory shocks. For many, this is the dawn of a new regime in monetary policy and financial markets.

At its July meeting, the FOMC raised the Fed Funds rate by 75 basis points, taking the range to 2.25%-2.5%. This means that the most important interest rate for the global economy has increased fivefold in just three months. This has had a very negative impact on both global government bonds (with rising yields and falling prices) and risky assets, such as stock prices.

In Europe, the ECB raised all its key interest rates by 50 basis points, ending eight years of negative rates. The Bank of England also surprised the market by raising rates more than expected.

The era of zero or even negative rates is over. An ultimate regime change has occurred, bringing us into a new era. That said, savvy investors may see this situation as a throwback to more normal times, similar to the period before the 2008 global financial crisis. However, that remains to be seen. The most appropriate comparison might be with the stagflation phase (a period of persistently high inflation combined with high unemployment and stagnant demand) experienced in the late 1970s and early 1980s.