A look at the impacts of higher interest rates in 2023 and beyond

The question of when major central banks would press pause on their rate-hiking plans came into sharper focus in 2023 as the effects of those increases took greater effect during the year. While rates may not rise much further, if at all, from peak levels reached this year, many economies and businesses face the prospect that "higher for longer" remains likely for the foreseeable future. Here is a selection of coverage from S&P Global Market Intelligence and S&P Global Commodity Insights on this topic.

Central banks near end of rate hikes as US, European economies diverge

The prospect of a near-term end to one of the most aggressive rate-hiking cycles in history comes as the US economy shows surprising strength and Federal Reserve officials await further evidence of how action so far is affecting inflation, employment and consumer spending. That contrasts with Europe, where policymakers face the prospect that any further moves to fight inflation through rate hikes will exacerbate an economic slowdown.

Market risks timing Fed rate cuts wrong

Expectations that the Fed has completed its rate-hiking cycle and will soon start cutting rates caused markets to soar in December. Yet investors may be overlooking the danger that a shift from rate hikes to rate cuts may not be imminent, and further policy tightening is still possible if wage growth remains hot and inflation fails to slow meaningfully.

Big Picture 2024 Capital Markets Outlook: Issuance poised to rebound

Corporates maintained access to debt markets in 2023 despite significant interest rate increases and the US banking sector's liquidity crunch during the spring, but equity issuance has plummeted. Market volatility could ease and investor support for new transactions could grow as inflation declines and the Federal Reserve ends its rate-hike cycle, provided that economic conditions continue to hold up in a higher-for-longer interest rate environment.

Read See the Big Picture: 2024 Capital Markets Outlook

Higher for longer US rates would help dollar regain lost ground

The US dollar may be poised for a turnaround from its recent downturn against other major currencies as recent US economic strength pressures the Federal Reserve to keep interest rates elevated.

The changing face of technology M&A

Rising interest rates and increased scrutiny have forced tech companies and the tech M&A market at large to get smaller.

Surging US interest rates disproportionately hit small businesses

Soaring costs of financing and tighter access to credit are squeezing companies with less than 500 employees, which already tend to pay a larger share of revenue on interest and rely more on short-term and floating-rate debt than bigger companies.

Even with clean balance sheets, oil and gas drillers exposed to rate increases

US oil and gas producers have overhauled their spending habits in the past three years, with a focus on repaying debt rather than accruing it. Their efforts have insulated them from a liquidity crunch caused by rising interest rates, but they are not immune to the secondary effects of a slowing economy.

US investment-grade companies to pull back on growth plans, deleverage

Rising interest rates have pushed up the cost of debt, making financing for activities like mergers, research and development and share buybacks more expensive. The measures to reduce exposure to higher borrowing costs may start a process of improving credit ratings after years of binging on cheap debt to fuel record levels of M&A at the expense of credit quality.

High interest rates hammer struggling US trucking industry

An aging workforce, hot labor market and resilient consumer demand are exacerbating the difficulty of finding and retaining truckers. Higher-for-longer interest rates could lead to industry consolidation.

Credit card, auto loan delinquencies rise amid higher rates, recession fears

The share of seriously delinquent credit card debt has risen to the highest level since early 2021.

Investment banks expect 2024 rebound as companies adjust to higher rates

Green shoots of M&A and IPO activity in the third quarter, and expectations that clients are adjusting to pricing in a higher rate environment, have sparked optimism about advisory and underwriting revenues in the new year.

Macro factors, industry evolution to challenge US utilities in 2024

Persistently high inflation and rising interest rates present incremental risks for the electric and gas utility sectors amid the ongoing energy transition.

Higher-for-longer rates mean lingering pain from bond portfolios

While some banks could restructure their bond portfolios, many more will continue to battle the drag from underwater securities and the related pressure on net interest margins and liquidity assessments during regulatory exams.

'Street Talk' Podcast: PE looking to fill banks' capital need created by higher-for-longer rates

As community banks face a challenging operating environment due to higher-for-longer interest rates and heightened regulatory scrutiny, Tony Scavuzzo, managing principal at Castle Creek Capital, expects private equity investing in the sector to increase.

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