Krugman: Are High Interest Rates the New Normal?
Goodbye, inflation. Hello, unsustainable debt.
At the start of 2023, the big worry was inflation
Now the big worry is interest rates.
For a while bond markets were basically betting that these rate hikes would be, well, transitory and that short-term rates would soon come way back down.
Over the past few months the bond market has, in effect, capitulated, sending the signal that investors expect rates to stay high for a long time.
Long-term interest rates are now higher than they have been since the 2008 financial crisis
What we’re seeing instead is a sharp rise in real interest rates — interest rates minus expected inflation
At this point, real interest rates are well above 2 percent, up from yields usually below 1 percent before the pandemic.
If these higher rates are the new normal, they have huge and troubling implications.
But now, suddenly, real interest rates are above most estimates of the economy’s long-run growth rate. If this reversal persists, the sustainability of high government debt will become a major issue for the first time in many years.
So is the low-interest era really over?
I have a vested interest in believing that the current rate spike is temporary.
The Federal Reserve Bank of New York produces regular estimates of r-star
My instinct is to say that the bond market is overreacting to recent data and that high interest rates, like high inflation, will be transitory. But as I said, that’s what I’d like to believe, so maybe you shouldn’t trust me here.
Paul Krugman New York Times 29 September 2023
https://www.nytimes.com/2023/09/29/opinion/natural-interest-rate-higher.html
Unthinkable Bond Yields Now the New Normal For Markets
Dramatic bond selloff reinforces shift from easy-money era
From the US to Germany to Japan, yields that were almost unthinkable at the start of 2023 are now within reach.
The selloff has been so extreme it’s forced bullish investors to capitulate and Wall Street banks to tear up their forecasts.
Notable was a revised forecast from Goldman Sachs strategists, who now see 10-year Treasuries ending the year at 4.30%.
While that’s some 40 basis points higher than their previous target, it’s below current levels.
Nordea spår nu en längre tid av höga räntor
– Många under 40 tror att det här är tillfälligt, men det är det inte, säger Nordeas chefsekonom Annika Winsth.
https://englundmacro.blogspot.com/2023/09/nordea-spar-nu-en-langre-tid-av-hoga.html
Den stora frågan är om vi har nått en räntetopp eller en platå.
Den senaste tiden har förväntningarna skiftat mot mer varaktigt höga räntor.
Carl Johan von Seth DN 21 september 2023
Den ”unga generationens” erfarenheter har lett till en närmast självklar låneexplosion
där hushållens skulder, som andel av disponibel inkomst, närmast har fördubblats sedan millennieskiftet. Mest dramatisk är skuldökningen bland unga vuxna boendes på platser med de högsta bostadspriserna.
Så när blir bostadsräntorna egentligen normala igen? Jag är nästan säker på att det kommer att ske inom två års tid.
Däremot är jag väldigt säker på att jag och aktiesparklubbens medlemmar har olika uppfattningar kring vad en normal boränta är.
Englund: ”När kan man förvänta sig att boräntorna blir normala igen?” (englundmacro.blogspot.com)
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