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Independent: Hamish Mcrae: High Interest Rates Are Here To Stay -- Don't Expect Them To Plummet.

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'Hamish McRae: High interest rates are here to stay -- don't expect them to plummet':


US monetary policy is not set with the rest of the world in mind. The country will get higher interest rates not to support the dollar but to control inflation. There is, however, a general feeling among the world's central banks, reflected in the Bank for International Settlements' annual report at the beginning of this week, that they have allowed themselves to be lulled into complacency about inflation and that they will have to lean harder against it. So the Fed is reflecting a global view, even if it does not pay particular attention to it.

And the problem is not just inflation. It is also credit quality: loans being made at every level to borrowers that don't tick all the creditworthiness boxes. The effect of easy money is that people and companies over-borrow. That is evident in the US but we see this here too in the level of credit-card borrowing and arguably in the size of people's mortgages.

So to set these rising dollar interest rates into their global context is to see them as a continuing correction of a policy error: the error of too cheap money for too long.

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