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(adjective/adverb) central bank speak for a sustained period of tight monetary policy, intended to quench inflationary pressures without triggering a recession
Alan Greenspan famously said he had “learnt to mumble with great incoherence” after becoming chair of the US Federal Reserve. His successors have spent much of this year trying to impress one clear message on investors: interest rates will not come down until inflation has fallen sustainably to target.
Huw Pill, the Bank of England’s chief economist, found one of the most striking ways to explain this, telling a South African audience in August that central banks needed to choose between two paths for interest rates — one with a sharp spike and precipitous drop, like that of the Matterhorn in the Alps, the other more like Cape Town’s Table Mountain, with a high plateau.
The smoother path, with rates remaining “higher for longer” at a stable level, was preferable, he argued, because it squeezed the economy more gently.
It has proved a difficult message to sell.
The US Federal Reserve, European Central Bank and BoE — along with many of their smaller counterparts — have all held interest rates at what now appears to be their peak since September or earlier. The effects are stark: housing markets in the deep freeze, M&A deals falling through, insolvencies rising.
But even before the Fed changed its turn — hinting at its December meeting that it might ease policy faster and further than it had previously signalled — traders had begun pricing in the first interest rate cut. They think that whatever the more hawkish rate-setters say now, they will soon feel obliged to loosen policy as inflation eases and the risks of a hard landing for developed economies increase.
Higher, but for how much longer, is the question for 2024.
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