Interest rates will announce the end of the game

Interest rates, more precisely their very low levels, or even negative in Switzerland, are one of the mysteries of this economic cycle. Predicted upwards and on their way towards normalisation at the beginning of the year, they relapsed throughout the first half of the year. The performance of the 10-year Confederation bonds became only positive again in mid-September.

The situation is clearer across the Atlantic: last week, the Fed raised its key rates for the eighth time since 2015. The cost of money in the short term is now 2.25% in the United States and should reach 2.5% by the end of the year. This is not yet very high, but borrowing costs something again; in short, the United States has left the crisis environment to return to a normal situation. This move should continue, since at the end of 2019, according to the Fed, a range between 3.0% and 3.5% is expected. At this rate, the end of the cycle should not be very far away.

The United States are 4 years ahead of Europe in terms of the economic cycle. The reason is the prompt and decisive reaction of their economic policies to the crisis 10 years ago. On the contrary, Europe opted for austerity under the influence of Angela Merkel and for monetary orthodoxy under Jean-Claude Trichet. In 2012, the European Central Bank, now headed by Mario Draghi, finally turned around by cleaning up the banking sector and vigorously supporting growth. Will Europe go to the end of its cycle? Or will it be driven by the end-of-game whistle that will resonate across the Atlantic when rates will end up weighing too heavily on the economy? The second outcome looks more likely.