Global Economy Shifts Towards Higher Interest Rates

The global economy is shifting towards a 'hotter' environment where interest rates will be higher. This change in climate is driven by deteriorating economic fundamentals, particularly in the US, which has seen a significant decline over the last 26 years.

The Congressional Budget Office projects a worsening deficit, with a possible 8% deficit by 2027. The net interest payments on the US national debt already consume about 17% of total annual federal spending, or roughly $1 trillion per year.

Rising American benchmark interest rates will suppress asset valuations, particularly in the housing market, where most mortgages are priced based on a 30-year rate. This will likely have a ripple effect globally, affecting countries like New Zealand, which is a net debtor nation and relies heavily on international markets for borrowing.