Cheap Money Era Ending as Central Banks Hike Interest Rates

The era of cheap money that has lasted nearly two decades is coming to an end. Central banks around the world, including the US Federal Reserve and the European Central Bank, are signaling a shift towards higher interest rates. This change in monetary policy is driven by rising government debt and increasing investments in areas like artificial intelligence and energy systems, which are competing for funds.

Low borrowing costs have been a hallmark of the post-2008 financial crisis era. In the US, interest rates remained near zero from 2008 to 2015 and again after the pandemic. The euro zone saw borrowings costs below 1% since 2009, while Japan's interest cost was below 0.5% since 1996.

Moody's Ratings recently reported that a new macroeconomic regime is driving differentiated repricing across financial assets, with higher interest rates at its core. Yields on 30-year US Treasury bonds have touched pre-2008 crisis levels, indicating a return to more expensive funding environments.