The threat to growth in the United States and the euro zone stems from rising interest rates, but through two very different mechanisms

In the United States, household demand remains strong, despite wage earners’ loss of purchasing power, thanks to a sharp fall in the savings rate. This fall results from the fact that US households are drawing on their savings accumulated during the COVID crisis and that they are borrowing heavily. In the euro zone, household demand is being underpinned, despite wage earners’ loss of purchasing power, by public aid, i.e. by public borrowing. In both cases, the threat to growth therefore stems from rising interest rates, but with different mechanisms. In the United States, it may discourage household borrowing; in the euro zone, it may discourage government borrowing and force governments to conduct less expansionary fiscal policies.