Since the end of 2008, the average fed funds rate has been just 0.13%. This extraordinarily low bank rate has been necessary to undo the damages caused by the GFC. But, obviously, it was never meant to be permanent. And as the US economy has recovered, so have we moved closer to the point where interest rates will have to rise.
Over the last couple of months, world growth has started to re-accelerate. In Europe (about 20% of the world’s economy) growth has started to recover after the European Central Bank (ECB) stepped up its program on monetary stimulus by buying more government bonds (called “quantitative easing” or QE). In the US (25% of the world economy), a mini-slump caused by very cold weather in the eastern US in the first quarter of the year has ended, and the economy has picked up.
Yesterday, in a nationwide referendum, the Greek people voted by over 60% to turn down the terms of the most recent offer of restructuring by the so-called “Troika” – the European Union (EU) , the European Central Bank (ECB) and the International Monetary Fund (IMF). This has thrown the markets into a tizzy, but what does it really mean?