Krugman : Why higher rates might be here to stay

Do you remember the economy of the late 1990s? 

A time of prosperity — low unemployment and rapid economic growth combined with low inflation — marred by irrational exuberance in the stock market.

What you might not realize is how closely the economy of early 2024 resembles that of the late Clinton years. 

Many would-be home buyers, in particular, are feeling frustrated by high mortgage rates. Isn’t that a big difference from the way things were in the late ’90s?

Surprisingly, the answer is no. People remember that stocks were high back then; they tend to forget that interest rates were also very high. Indeed, mortgage rates were even higher than they are now

 High interest rates might last a lot longer than many people, including me, have been predicting.

Then, suddenly, things seem to have changed.

What we do see is a huge surge in manufacturing investment, primarily driven by the Biden administration’s climate policies

I, for one, didn’t see this coming, and as far as I know, nobody did. But as the bumper stickers don’t quite say, stuff happens.

Paul Krugman New York Times 30 April 2024

 

Hey, I managed to get through this without mentioning r-star.

Quo vadis, r*? The natural rate of interest after the pandemic

BIS Quarterly Review  |  04 March 2024

https://www.bis.org/publ/qtrpdf/r_qt2403b.htm

Bank for International Settlements (bis.org)