Scarcer supply and capital could keep interest rates higher for longer

A shift away from abundant global supply and cheap capital is pushing central banks toward tighter monetary policy, even as growth slows, unemployment rises and core inflation remains near target, the analysis argues. Federal Reserve Chair Kevin Warsh signaled that the next U.S. rate move may be higher, while the European Central Bank and other central banks have also taken a more hawkish stance.

The pressures include higher energy costs, tariffs, disrupted trade routes, tighter labor supply and more expensive efforts to rebuild supply chains. The analysis says supply-driven inflation cannot be directly reversed by interest rates, which instead could contain demand at the cost of a recession.

Investment needs in artificial intelligence, energy, defense and government borrowing are also competing for a shrinking pool of savings. Real government bond yields have risen to their highest level since before the financial crisis, challenging expectations that rates and borrowing costs will return to near-zero levels.

Read the full story at haver.com.