Two of the major systems underpinning the global economy — money and energy — are facing changes so significant that they could well be considered revolutions. And the potential for sudden and unexpected flare- ups is playing on minds right across the globe.The low interest rate and low inflation environment that supported our economies through the major crises of the past two decades is under strain as we emerge from the pandemic.
The Federal Reserve is indicating a swift tightening cycle, involving an end to asset purchases in Q1 and three to five rate hikes this year. But this rapid systemic shift in monetary policy risks lighting the fuse on a global debt pile that has ballooned during the years of ultra-low rates. If, as rates rise, growth collapses, defaults rise and markets panic, central banks will be forced into a dovish pivot.
Although this may sound intimidating, there are already some effective precedents, such as the prominent nutritional information on processed foods. Anyone aiming for a healthier lifestyle can pick the yoghurt with less sugar or sauce with lower salt. In a similar way, consumers may benefit from more and clearer information on the carbon cost of their purchases, directing the unseen forces of demand towards greener products.
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