Rates Reset in the West – Six Economies, Six Stories

Rates Reset in the West – Six Economies, Six Stories

Transcript:

Hello, I am David Buckland, CEO of Montgomery Investment Management and welcome to this week’s video insight.

Today I analyze the cash rates of the central bank in the last 12-15 months in 6 Western world economies; Australia, the United States, the United Kingdom, Europe, Canada and New Zealand.

Inflatory expectations in these economies illustrate a very mixed report card, in which the eurozone, Canada and New -Zeeland have apparently put the inflation genius in the bottle, as you can see in Table 1.

All three economies have aggressively reduced interest rates, by around 2.5 percent on an average peak of 5.0, and their economies remain under pressure from relatively higher unemployment. These movements can offer temporary lighting, but they emphasize deeper structural weaknesses that just can’t solve cuts.

In Table 2 we can see that both Australia and the US have shown resilience – enjoying a relatively low unemployment rate, and at least their inflation rates seem higher and stickier than was expected.

These trends for Australia and the US suggest that monetary relaxation can soon be confronted with difficult considerations for their central banks.

In the past 12 months, the six economies, Australia, the US, the VK, Europe, Canada and New Zealand have implemented an average of six interest rate letters for an average of 12 months, ranging from three in Australia to eight in the eurozone and Canada. On average, the rates have been reduced by 1.75 percentage points (from 2.50 percent in Canada and New Zealand to 0.75 percent in Australia), which reduced the average cash rate of a peak from 5.0 percent to 3.25 percent. And in percentage terms, that is an average reduction of 35 percent.

The impact is varied: in the eurozone, Canada and New Zealand, lower inflation seems to be bound by weaker economic conditions and higher unemployment, while Australia and the US, on the other hand, have remained more resilient, supported by relatively low unemployment but struggling with sticking inflation.

With inflation on average around 2.7 percent in these economies, the environment remains a challenge for savers whose efficiency has difficulty keeping pace, while spending benefits modest benefits from lower loan costs.

Go for a deeper dive to the blog where I unpack these figures in more detail and combine them with my economic observations.

That is all we have time for today. As always, keep following us on Facebook and X.

Thank you.