Today's FT has an opinion piece of Lawrence Summers:
Real rates in the US will only increase mildly because of the following reasons:
- Real rates are trending down for 20 years.
- As rates rise in the US, foreign capital is attracted which will strenghten the dollar and in turn reduces demand for traded goods.
- Low rates have already pulled demand forward, resulting in lower levels of demand for the future (e.g demand for cars).
- Regularitory pressure is inhibiting lending to small and medium sized companies.
- Inflation is getting more difficult to measure as services such as healthcare where quality is hard to measure
- Most importantly is that global growth outlook is too weak for a rate hike of the usual 300 - 450 basis points. The markets expect a more realistic increase of 100 basis points.
Central bankers have less tools in their cupboard than they assume.
