Consumers, businesses and investors are facing an era of higher borrowing costs as some of the lowest global interest rates in modern history begin to rise.
Yet the message from most economists is a reassuring one: Rates won’t likely climb fast or high enough to inflict much damage on economic recoveries in the United States or Europe. Borrowers and investors may feel some short-term pain but should manage fine in the long run.
Part of the reason for the optimism is that rising rates themselves are a healthy sign: They mean that U.S. and European economies are strengthening, people are spending, companies are hiring and prices are starting to rise at more normal rates. The risk of too-low inflation – which typically slows spending and makes loan repayments costlier – has receded.
“There is an economic normalization taking place around the world,’’ says Eric Lascelles, chief economist at RBC Global Asset Management.
For people who depend on interest income from savings accounts or certificates of deposit, higher rates offer at least a little relief from the punishingly low rates of recent years. Businesses and consumers will face modestly higher loan payments.
At their policy meeting this week, Federal Reserve policymakers are sure to discuss their timetable for raising short-term rates from record lows, where they’ve been since 2008. Most analysts foresee the first hike in September, with additional increases occurring very gradually.