The head of HSBC (HBC) had an epiphany. Unlike most bankers who constantly advocate lower interest rates, the head of Europe’s largest firm thinks rates must go higher.
Michael Geoghegan, CEO of HSBC, told Reuters that “Inflation is a long-term problem because there is no long-term will to solve it.” He sees the solution as moving rates back up at central banks.
The issue may be that trying to slow the economies in the US or Europe will not push down inflation. One theory, a theory with some sane adherents, posits that rising demand in Asia and flat or falling supply of food and crude worldwide make bringing down inflation though monetary policy difficult.
The HSBC comments do indicate that banks are beginning to see easy credit as a nice by-product of an economic slowdown. It may allow them to rebuild balance sheets, but fast-moving inflation could crush the entire monetary system. Having low rates does little to offset that.
Inflation, hardly on the radar six months ago, now blots out the Sun.
Douglas A. McIntyre