A strange thing happened this week: calm. US inflation data showed that prices were rising faster than analysts had expected or hoped in February — an outcome that, on the margins at least, bolsters the case for keeping interest rates higher for longer.
At one point last year, “higher for longer” were the three scariest words in the English language for investors — enough to strike terror in to any portfolio manager. This time around, however, government bonds wobbled only slightly and both US and global held it together around record highs.
This is a sign that interest rates are shedding their suffocating dominance over global markets, and that stocks are climbing not because they are huffing the speculative fumes of imminent and aggressive potential rate cuts but because they’re worth it. We are in a new era where the apparent need to keep interest rates high in an effort to suppress inflation (now running at 3.2 per cent in the US) is a bullish signal for risky assets like stocks, not a reason to panic.