With peak interest rates in sight, a more constructive baseline for markets should unfold as we enter 2023.
It takes time for changes in interest rates to work. When rates are increasing, it takes time for us, as consumers, to realise we’re getting less for our dollar spent because of inflation – and that there are now decent returns for saving more.over recent months, central banks are starting to shift their language towards “preparing to pause” their seemingly relentless monthly rate hikes.
It makes sense. Since the mid-1990s, when inflation targeting became the de facto model for monetary policy, shifting rates has never been about where inflation is today, but aboutSure, the “models” or tools for predicting inflation have come under pressure,. But slowing growth, contained inflation expectations and some evidence actual inflation is moderating suggest the path of least regret is shifting towards letting the significant policy tightening already delivered do its work.
Eventually, like virtually all cycles before, consumers become more discerning, demand slows, inventories rise and price discounting begins. First, for those not still enjoying multi-year historically low fixed-rate home loans, the end of the steady rise in monthly loan repayments is coming into view. For those confronting a jumbo reset to higher rates during the second quarter next year, rates are unlikely to be heading south by then.
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