Hiking

As markets continue to be in thrall to the posturing and barbed rhetoric of Central Bankers, investors hop from foot to foot wondering what it all means for asset prices into what is shaping up to be a particularly sticky 2023. This week more hikes. Up and up we go. Ostensibly the in-it-to-the-end Federal Reserve are on the tail of inflation, raising the heat on borrowing costs in an attempt to get the data in line and the core measures back down to spuriously set target levels. And yet, it has been suggested that in their efforts to squash decade high prints the moves will, in some instances, pour further fuel on the current inferno. Whilst higher borrowing costs are likely to temper demand for many things, some things they do not. For some demand is, what the textbooks call, inelastic. Examples cited include farming, a sector in the US that currently sits on nearly half a trillion dollars of debt. Rates go up, so too interest payments. Like higher seed or fertiliser costs, those interest costs will simply get shipped on down the line. Otherwise farmers will down tools, stare into the distance and food will not get grown. Utilities too, pass it on. And healthcare. Higher rates for many companies mean a higher cost of business. Which for the insurers, means higher premiums down the line. Prices, up and up. On and on it goes. And all this aside from the interest payments on the $92.5 trillion of private and public debt, reaching an eye-popping $3.4 trillion. $3.4 trillion just on interest. Read it again. Say it out loud. Tell it to your dog and watch what it does to his ears. It’s not unreasonable to assume then, that higher interest rates may not be doing a whole lot of good when the system is groaning with so much debt. Something is going to break. It’s just a matter of time.