Higher for Longer? Rates Could Be Higher Forever
Our holiday from history has come to an end. The zero-interest-rate environment so many people expected would last forever.
Despite all the talk about when the US Federal Reserve will cut rates and bring back those holiday vibes, there is a very real possibility that it will not matter when the cuts happen or how many there are.
That’s because the interest rates that matter for much of the economy — longer term US Treasury bills — may not just be higher for longer: They may be higher forever. .
The 10-year is what matters for how capital is priced and what rates consumers face.
In retrospect, it seems clear it wouldn’t last.
But the bond market of the last few decades made it possible to believe we lived in a world with no trade-offs. Governments could borrow money to spend or cut taxes.
Venture capital and private equity, flush with cash seeking a positive yield, did not have to be so particular about where they invested.
Low interest rates buoyed stock valuations. Firms could lever up and expand without a worry how it would all be paid back.
And while mortgage rates and interest on auto loans and consumer credit will be higher, there are some benefits to consumers.
Savers will once again get a positive yield for investing in low-risk assets — at least before inflation.
Allison Schrager Bloomberg 14 maj 2024
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