Think Ahead: Are Rate Hikes Pointless

This report examines the delayed impact of interest rate hikes on the eurozone economy due to the prevalence of long-term fixed mortgage rates. It concludes that central bank signaling currently carries more weight than incremental policy changes.

Key Takeaways

• 1.Interest rate hikes have a lagged impact on the economy due to a high prevalence of long-term fixed-rate debt in Europe.
• 2.Rate hikes can paradoxically boost household disposable income in the short term by increasing net interest income from savings.
• 3.In the current environment of high fixed-rate debt, central bank signaling is often more impactful than actual policy rate changes.

Table of Contents

• Are rate hikes pointless?
• How average mortgage rates have changed since the rate hikes four years ago
• Rate hikes initially boost household cashflows these days
• US homebuilding has held up as existing home availability has plunged
• Our three scenarios for energy prices
• THINK Ahead in developed markets
• THINK Ahead in Central and Eastern Europe

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