Prepare for higher rates and sluggish growth | Canberra time

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Be a good student of history to understand what comes next for interest rates and stock markets, says a top banker. Better COVID-19 treatments and highly effective vaccines mean the focus in 2022 will shift to what’s happening in the economy, Goldman Sachs boss David Solomon said during a podcast released on Friday. Addressing bosses around the world, he said the same things were discussed at every meeting. The pandemic and response, labor and return-to-work issues, supply chain frustrations, inflation and economic policy, technology and new innovations, and China are at the center concerns. But one problem is essential. “COVID is becoming rampant in society very quickly and we have to learn to live with it,” he said. “The big problem is inflation.” If you’re a CEO, the impact of inflation will dominate everything you do for a few years, he said. “If you’re an academic and you think about the next decade, well maybe it’s transitory, maybe it’s not going to last a decade, but it’s real and it’s going to affect growth.” For ordinary Australians, the mortgage is the big concern as the list of lenders with fixed rates below 2% shrinks week by week. Australia’s second-largest bank, Westpac, raised fixed rates on Friday for the first time in 2022. Rate City researcher Sally Tindall said the move comes as the US Federal Reserve is expected to raise rates faster and more aggressively than expected. “We expect other banks to follow within days due to the sharp increases in the cost of wholesale funding,” she said. “Mortgage holders who have been fortunate enough to lock in a record fixed rate over the past two years are sheltered from these increases, but only for the duration of their fixed rate tenure.” With inflation priced in and with sluggish growth ahead, Solomon expects stock markets to die down as higher inflation affects stock values. “People have forgotten how low rates, free money, affect asset prices, and you have to be a good student of history,” he said. “It’s no different this time.” Australian Associated Press


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