23 Mar 2022
Interest Rates: Central Bank tightening cycles
- Posted by Dejan Pekic BCom DipFP CFP GAICD, Senior Financial Planner
History confirms that not all tightening cycles (which is when Central Banks increase interest rates) end in a recession.
The majority do end in a recession as you can see from the table above but not all.
Yes, the large and rapid increase in interest rates by the US Federal Reserve in 1994 did not end in a recession in the United States or in Australia but that still did not stop financial asset prices crashing in 1994.
Over the past week, financial asset prices have improved from correction levels because financial markets expect the US Federal Reserve to slowly increase interest rates over the next two years and not do anything violent.
Let’s see if this proves correct.
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