Rate cuts are coming, for some

For some countries, rate cuts have started and will continue. For others, they’re still a long way away. Here’s why.

On Thursday, the European Central Bank (ECB) cut interest rates for the first time this cycle. However, consumer prices across the Euro area are rising at 2.6% year-on-year, above the bank’s 2% target. Some pundits have wondered if this is the start of a long downward trend for global interest rates. The answer is yes, but only for countries where rate hikes have hurt spending.

Rate cuts are coming for some economies but not others because rate hikes have hurt some while helping others. Countries with low levels of public debt compared to the amount that households and firms have borrowed—like Switzerland, Sweden and Australia—have been hammered by rate hikes. Higher interest rates have cut the amount of money families and businesses have left over to spend, hurting spending. On the other hand, rate hikes have been a boom for countries with much more public than private debt, like America and Singapore. They have ratcheted deficits open, pouring money into the economy and stimulating d…