What's going on?

America�s top financial official � and the former head of its central bank � had a message for her successor on Sunday: higher interest rates could actually be good for the country�s economy.

What does this mean?

Plenty of investors are concerned that the US Federal Reserve might soon start unwinding pandemic-driven economic support measures, including the rock-bottom interest rates that make borrowing super cheap. But the Fed�s former head honcho � now US treasury secretary � said in an interview over the weekend that higher interest rates might not be so bad.

After all, the US president�s $4 trillion spending plan should provide a long-term boost to the American economy. And if higher inflation � and therefore higher interest rates � are the short-term result, it may be a price worth paying. Higher rates would also give the central bank more firepower in the event of an economic slump: it could lower them again to encourage more activity if it needed to.

Why should I care?

For markets: Insider information?
If the current head of the Fed had uttered these comments, we�d be witnessing a bond market selloff similar in scale to 2013�s �taper tantrum�. Thankfully, the US treasury secretary holds no sway over the country�s central bank. Still, her knowledge of its inner workings is arguably unparalleled among outsiders, and if the Fed�s top brass today are thinking along the same lines, investors might be confronted with interest rate rises sooner than expected.

Zooming out: The chips are still down.
One of the biggest questions for the Fed right now is whether high US inflation is a fleeting thing, driven by temporary factors like shortages of the microchips used in many consumer tech products. But that one might not be so temporary after all: one of the world�s biggest electronics manufacturers warned on Sunday that the global undersupply could last until 2023.