For too long, more than a year, managing money has been relatively plain sailing, with stocks rising higher. This is instilling an anxious sense that something has to go wrong, and putting pressure on some of the stock markets’ frothier elements.
Earlier this month, Janet Yellen was responsible for flicking away a little of that froth. At an event hosted by the Atlantic magazine, the former Federal Reserve chair, now US Treasury Secretary, uttered words that struck fear in the hearts of some market participants: “It may be that interest rates will have to rise somewhat to make sure our economy doesn’t overheat.”
It is almost comical that this should cause any market reaction at all. The Fed slashed rates to zero and turned on the stimulus hose in the teeth of the coronavirus crisis last year. Now, happily, vaccination rates in the US are high and infection rates are falling. Business is getting back to normal, quickly. Quickly enough, in fact, to cause bottlenecks and supply problems in everything from lumber to labour.
It does not take a rocket scientist to see how this might pan out. Making predictions is foolish, but I am prepared to stick my neck out here: the next move in US interest rates will be higher, not lower.