Interest and inflation | Nordea expert with relentless interest rate notice

“High interest rates forever” is the message of Nordea Markets macro strategist, Filip Madja Madsen.

Interest rates, including the interest people pay on mortgages, have risen sharply in the past year. This year, mortgage interest rates rose on average from 2.7 to 4.6 percent — the highest in 15 years. According to Smart Money.

For 2024, the average interest rate level is likely to be about 0.75 percentage points higher than it was in 2023.

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But it is not at all certain that the pain will be short-lived, and that interest rates will fall to a more “normal” level within a few years.

On the contrary, the Nordea Bank strategist says that we can withstand high interest rates for a long time to come. This agrees well with the development we are witnessing in the interest rate market, where the most important interest rate in the world, the 10-year interest rate on US government bonds, has risen sharply and is now at Nearly five percent. It is a clear sign that interest rates will now remain high for a long time. This also helped the Norwegian krone weaken sharply this week.

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In the Madsen report, he wrote that central banks around the world are in the process of cutting interest rate hikes, but this could become a problem for them, simply because high inflation is the reason they set interest rates in the first place. It is still well above the two percent target.

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High inflation

For example, little or no interest rate increases are expected from Norges Bank, but core inflation, which is the increase in prices excluding energy and taxes, remains very high. 5.7 percentThat’s nearly three times the target of 2 percent.

“The big risk here is that central banks stop fighting inflation too early. Central banks pause raising interest rates at a time when it is not certainly clear whether inflation will return to the 2% target on a sustainable basis,” Madsen wrote in a note. “Inflation falling to 2 percent and central banks saying they are reluctant to raise interest rates further are among the factors pushing long-term interest rates higher.”

It points out, among other things, that the labor market, including in the USA, is very strong and wage growth is high, which makes it more difficult to limit price inflation, because higher wages lead to higher prices.