America s Interest Rate Puzzle

The Coming Age of Interest

The Real Interest Rate Risk

The Long Mystery of Low Interest Rates

The reason is obvious a sharp rise in interest rates.

Central banks respond to lowered demand by reducing interest rates and to higher expected inflation by raising interest rates.

Slow Growth for US Interest Rates

But interest rate convergence caused economic divergence.

Sometimes interest rate changes have the predicted effect, sometimes they don't.

Rates need to come down considerably more than they have.

One would be to include interest costs based on a measure of the real interest rate.

If implemented now, steep rate cuts can still have a significant positive effect.

But today s low interest rate dynamic is not an entirely stable one.

The economy could bounce back as those excesses were absorbed over time, making room for new investment. Those recoveries were also helped by interest rate reductions by the central bank.

Hard budget cuts and sky high interest rates could be avoided.

Both were reluctant to lower interest rates markedly.

Another possible explanation of low interest rates is financial repression.

Those recoveries were also helped by interest rate reductions by the central bank.

The most recent cut in Japanese interest rates is a welcome step.

(b) Interest rates and their expected movements in the future

(b) Interest rates and their expected movements in the future

This implies an interval of two months between interest rate moves instead of the three month interval that has become standard ECB practice in the current interest rate cycle.

First, while the US Federal Reserve continued hiking short term interest rates, long terms rates did not increase in tandem, which allowed housing prices to continue rising.

This will drive down interest rates and lead to an economic rebound.

Will Rising Interest Rates Torpedo Stock and House Prices?

After all, gold pays no interest and even costs something to store.

Gold prices are extremely sensitive to global interest rate movements.

In fact, a persistent sluggishness of economic activity could well necessitate a further reduction of interest rates.

Unless the ECB picks up the pace of interest rate increases now, the goal of interest rate neutrality may not be politically feasible, jeopardizing achievement of the bank s price stability goals.

Whereas excess liquidity is inflationary and calls for higher interest rates, excess saving is deflationary and calls for lower rates. This brings us to the dilemma faced by central banks.

That is why interest rate spreads in the eurozone periphery are widening again now.

A strong currency keeps both inflation and ECB interest hikes at bay.

However, monetary policy is a much more awkward, indirect and imprecise way of choosing winners and losers than fiscal policy.

But this vigorous attempt to reduce interest rates is distorting capital allocation. The US, with the world s largest deficits and debt, is the biggest beneficiary of cheap financing.

The use of the term has grown in parallel with rising , not falling, interest rates.

What if the stock market is not scared off by the prospect of higher interest rates?

But, in a zero interest rate environment, that role must be reevaluated.

Of course, rapid credit growth is a natural consequence of declining real interest rates.

The Fed has been trying to slow demand growth and cool the housing price bubble to avoid inflation, but carry trade speculators have been easing credit.

Today s oil price is also linked to anticipated future interest rates.

But this vigorous attempt to reduce interest rates is distorting capital allocation.

So we expect a substantial depreciation premium on US interest rates.

In this scenario, budget cuts create room for interest rates to fall.

Europe and the United States are at different phases of the business and interest rate cycles.

The Carry Trade Carries On