Are interest rates ever going back up?

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ChinchillaWhiplash
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Are interest rates ever going back up?

Post by ChinchillaWhiplash »

How long will they keep these rates so low? Seems like the economy is pretty healthy right now. Corporate debt is about out of control. Consumer debt has been out of control for a long time now. Just seems crazy that the Fed hasn’t raised rates hardly any in years. Are we going to be like Europe and Japan? That hasn’t worked out so well for them.
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Re: Are interest rates ever going back up?

Post by fredflinstone »

yes, interest rates almost certainly will rise at some point in the future.
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JoeRetire
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Re: Are interest rates ever going back up?

Post by JoeRetire »

ChinchillaWhiplash wrote: Thu Jan 23, 2020 9:04 amAre we going to be like Europe and Japan?
No, we aren't going to be like Europe and Japan.

Interest rates here (and there as well) will eventually go back up. Nobody knows when.
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CurlyDave
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Re: Are interest rates ever going back up?

Post by CurlyDave »

ChinchillaWhiplash wrote: Thu Jan 23, 2020 9:04 am How long will they keep these rates so low? Seems like the economy is pretty healthy right now. Corporate debt is about out of control. Consumer debt has been out of control for a long time now. Just seems crazy that the Fed hasn’t raised rates hardly any in years. Are we going to be like Europe and Japan? That hasn’t worked out so well for them.
Personally, I have enjoyed the past few years of US market performance, especially 2019.

The 3-year CAGR of SPY is 15+%. If low interest rates are what causes this, and I don't know if they really do, bring it on.

OTOH, if they rise, as I suspect they eventually will, I will adjust to what the market brings.
GrowthSeeker
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Re: Are interest rates ever going back up?

Post by GrowthSeeker »

If it were suddenly the 1970s, but somehow there was an internet and a similar forum (or bulletin board) back then, we would currently be reading a post entitled:
"Are interest rates ever going back down?"
Just because you're paranoid doesn't mean they're NOT out to get you.
cableguy
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Re: Are interest rates ever going back up?

Post by cableguy »

I don't think it happens in any material way in our lifetime. And that holds true if your 20 years old or 80 years old. The whole system is based on low interest rates. The "market" used to determine interest rates, with the government and central bank heavily influencing them. Nowadays....there is no "market". Its a contrived system, with underlying currency wars being fought across the board. My opinion....rates stay low......stocks keep going up. Does it make sense? No! We've thrown out all economic principles. But I think it stays this way for a long long time....
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JoMoney
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Re: Are interest rates ever going back up?

Post by JoMoney »

I expect they'll go up eventually, probably slower than anyone hoping to make any short-term allocation moves might imagine, and with hiccups along the way.
The U.S. bond market doesn't exist in isolation though, so despite the relative resiliency in the U.S. economy, global interest rates in developed areas will keep U.S. rates from growing much. Inflation and a wider spread global economic growth could change things rapidly, but hard to predict that.
Despite the current currency debasement going on, most of that money is flowing to banks and financial assets/savings. It's not "helicopter money" flowing quickly to consumers. If we really wanted to debase the currency and get unproductive inflation up (and I don't think we do), it can be done.
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Re: Are interest rates ever going back up?

Post by DB2 »

The Fed tried to normalize rates in 2018 (and move to "auto pilot" QT) and it only led to the worst December stock market crash since the Great Depression, so they changed course rather quickly to cut rates and go back to QE in 2019. I always knew the rate hikes the Fed wanted would not be able to happen. With this much debt, it's impossible to do unless you wreck the economy and the markets. I see rates going back down to zero and incredibly massive QE in the next downturn. Usually they cut 400-500 basis points in a recession and that is not possible with the Fed funds rate around 1.5 so they will have to rely on A LOT of QE and probably MMT or as Ben Bernanke once called "helicopter money". The question would become, does that lead to more inflation than they want and would it require raising rates to control the inflation (and that wouldn't look pretty). As we can continue to rack up lots and lots more debt with little inflation, then rates can continue to stay low. All hypothetical as this point, but the Fed has painted themselves into a bad corner in my opinion for this reason but others too.
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Re: Are interest rates ever going back up?

Post by lazyday »

I try to be prepared for things to change or to stay the same.
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watchnerd
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Re: Are interest rates ever going back up?

Post by watchnerd »

ChinchillaWhiplash wrote: Thu Jan 23, 2020 9:04 am How long will they keep these rates so low? Seems like the economy is pretty healthy right now. Corporate debt is about out of control. Consumer debt has been out of control for a long time now. Just seems crazy that the Fed hasn’t raised rates hardly any in years. Are we going to be like Europe and Japan? That hasn’t worked out so well for them.
Yes, they will at some point.

Inflation would be one possible reason.
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chevca
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Re: Are interest rates ever going back up?

Post by chevca »

Most likely, yes.

Unless of course, 'this time is different'... :happy
Admiral
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Re: Are interest rates ever going back up?

Post by Admiral »

No idea, but I'm happy with my sub-3% mortgage and my 30% stock returns :mrgreen:

Total bond could be a little better, though! :|

If I had to speculate (which is what we're all doing) I think they will trend back up but very slowly.
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gmaynardkrebs
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Re: Are interest rates ever going back up?

Post by gmaynardkrebs »

Unless we see some serious inflation (eg., near 3%), which I don't anywhere see on the horizon, I think they will stay low.
jdilla1107
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Re: Are interest rates ever going back up?

Post by jdilla1107 »

My answer is that "it doesn't matter to my own plan". Trying to take positions based on guesses to macroeconomic questions is a fool's errand, in my opinion.
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Re: Are interest rates ever going back up?

Post by gmaynardkrebs »

jdilla1107 wrote: Thu Jan 23, 2020 12:10 pm My answer is that "it doesn't matter to my own plan". Trying to take positions based on guesses to macroeconomic questions is a fool's errand, in my opinion.
For a passive investor, I think that makes sense.
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Re: Are interest rates ever going back up?

Post by Stinky »

GrowthSeeker wrote: Thu Jan 23, 2020 9:18 am If it were suddenly the 1970s, but somehow there was an internet and a similar forum (or bulletin board) back then, we would currently be reading a post entitled:
"Are interest rates ever going back down?"
Yes, I remember those ugly days.

I think that interest rates peaked in the early 1980s. I made 20% one month on my money market account. I was offered a 15% mortgage.

I hope that we never go back to that. At least in my lifetime.
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Stormbringer
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Re: Are interest rates ever going back up?

Post by Stormbringer »

Rates will go up eventually, but I wouldn't hold my breath for big, sustained moves to the upside. It could take decades:
  • Whatever the Fed Funds rate is right now, when the next recession comes along it is probably going right back down to zero and will stay there until the next expansion is well underway.
  • The world is aging, and old people save money. There is a global glut of savings that is likely to persist for a long time.
  • Countries all around the world have rock-bottom interest rates. This makes it hard for rates to increase substantially in any one country, because of interest-rate arbitrage.
  • Government debt around the globe is quite high, so higher rates would be a budget-buster for many governments. They have an incentive to keep real interest rates at or below zero (e.g. financial repression) until debt-to-GDP ratios reach more manageable levels.
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jdilla1107
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Re: Are interest rates ever going back up?

Post by jdilla1107 »

gmaynardkrebs wrote: Thu Jan 23, 2020 12:34 pm
jdilla1107 wrote: Thu Jan 23, 2020 12:10 pm My answer is that "it doesn't matter to my own plan". Trying to take positions based on guesses to macroeconomic questions is a fool's errand, in my opinion.
For a passive investor, I think that makes sense.
Trying to predict macro economic events is terrible for even an active investor. Successful active investors are focused on niche playbooks that they understand and bring expertise to, in my experience. I am a big believer in index funds and also do private equity sorts of investments.

The person who is sitting at home, watching cnbc, and making bets on macroeconomics is not going to be more successful than luck would otherwise dictate. What possible edge could an individual have making a bet that "USA interest rates will go up in the next 18 months"?
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Re: Are interest rates ever going back up?

Post by TheMadEph »

It depends on the frame for whether you think interests rates are abnormally low. Compared to the 1970s, yes. Compared to the implied interest rates across monetary history, well....might be a different answer. One of the most compelling arguments in Capital in the 21st century (yes, the one by Piketty) is about how low interest rates were the historical norm. So, under that lens, to believe that interest rates will go back up to the levels that many of the board members have experienced in their lifetimes is morel likely to be an assumption that is too biased by personal experience. It is just that the time frame we are talking about is so long it is hard to see. Not saying they won't go back up sometime, maybe soon... but the percentage chance that it does should probably be determined by looking at a longer scope of history than just the last 50 years.
I do think having a view point on this is somewhat useful for investment thesis though; and by investment thesis I mean more a personal forecast of matching assets and liabilities into the future of one's retirement, rather than picking precisely which bond fund. So obviously trying to play a short term interest rate guessing game is probably not useful. But trying to take a clear eyed approach and saying: Jeez, I think low interest rates are more the norm, so if can lock in 30 year return at 4.5%, i shouldn't be so nervous that interests rates are going to spike to 10% within 5 years and stay that way for the last 25....
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Re: Are interest rates ever going back up?

Post by patrocity »

https://seekingalpha.com/article/431854 ... ng-to-zero

I found this article from 1/20 pretty interesting. I don't think it's new news to any of the regulars here.
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Re: Are interest rates ever going back up?

Post by nisiprius »

In April of 2014, Bloomberg polled a panel of 68 economists on what they were forecasting for the ten-year Treasury rate over the next six months. 68 out of 68, 100%, unanimously, said it would be going up, the only question being how much.

It went down.

If 68 out of 68 economists could all be wrong, one might as well just shrug and say "nobody knows" or "it can't be predicted."
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Re: Are interest rates ever going back up?

Post by cadreamer2015 »

This is essentially equivalent to the question “Will we ever have another bear market in stocks?” Bond prices move inversely to interest rates, so bond prices go down when interest rates rise. The answer to both questions is “Almost certainly, but no one can predict when.” Make your plans so that you can handle rising or falling interest rates and the occasional but unpredictable bear market in stocks.
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Re: Are interest rates ever going back up?

Post by jubby288 »

I often wonder if rates will stay low for decades to come

Out of these factors are any of them likely to push rates higher?

0% fed funds rate at next recession
Older demographics
Technology enhancements
Globalization
Gov. debt

JB
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Re: Are interest rates ever going back up?

Post by BogleFanGal »

GrowthSeeker wrote: Thu Jan 23, 2020 9:18 am If it were suddenly the 1970s, but somehow there was an internet and a similar forum (or bulletin board) back then, we would currently be reading a post entitled:
"Are interest rates ever going back down?"
exactly what I was thinking.... crazy nosebleed rates. I could imagine the threads :D
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Re: Are interest rates ever going back up?

Post by jubby288 »

FWIW, Reuters has quoted Bernanke in saying that he doesn't believe the fed funds rate will rise back to the long term average of 4% within his lifetime

JB
Last edited by jubby288 on Thu Jan 23, 2020 2:11 pm, edited 2 times in total.
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Re: Are interest rates ever going back up?

Post by abuss368 »

It has often been said that it is harder to predict the movement of interest rates than the stock market.
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Re: Are interest rates ever going back up?

Post by abuss368 »

jubby288 wrote: Thu Jan 23, 2020 2:10 pm FWIW, Reuters has quoted Bernanke in saying that he doesn't believe the fed funds rate to rise back to the long-term average of 4% in his lifetime
Incredible! I want our bond funds to starting yield more! I feel bad for any retirees who rely on interest income.
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Re: Are interest rates ever going back up?

Post by rascott »

Consumer debt to GDP ratio is much lower than it has been in the past. It's about 75% of GDP...... down from nearly 100% in 2007/8..... ratio has been in a slow decrease for the last decade.... now back to levels last seen in 2001.

For whatever reason.... US households overall actually continue to de-leverage.


As to interest rates..... nobody can do anything but guess. Is there even a valid reason to think these are not "normal" rates? The Fed Funds rate was about where it is now for much of the 50s and early 60s. Then we had one period of intense inflation.... then a 40 year retrenchment back to where we started. We could stay around here for decades.
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Re: Are interest rates ever going back up?

Post by 1789 »

They will go down more before coming up
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Re: Are interest rates ever going back up?

Post by JoeRetire »

DB2 wrote: Thu Jan 23, 2020 9:36 am The Fed tried to normalize rates in 2018 (and move to "auto pilot" QT) and it only led to the worst December stock market crash since the Great Depression
Lesson: should have picked a different month...
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Re: Are interest rates ever going back up?

Post by ahmadcpa »

Interest is an economic tool used by governments for the following:
1- Boost the economy
2- Control inflation

The two goals above conflict conflict with each other because raising interest will lower the inflation and lowering the interest will boost the economy.

Therefore, the answer to your question is that interest will increase when inflation hits. A good question will be is when inflation is forthcoming and the answer is, no one knows.
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Re: Are interest rates ever going back up?

Post by watchnerd »

patrocity wrote: Thu Jan 23, 2020 1:25 pm https://seekingalpha.com/article/431854 ... ng-to-zero

I found this article from 1/20 pretty interesting. I don't think it's new news to any of the regulars here.
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Re: Are interest rates ever going back up?

Post by watchnerd »

jubby288 wrote: Thu Jan 23, 2020 2:10 pm FWIW, Reuters has quoted Bernanke in saying that he doesn't believe the fed funds rate will rise back to the long term average of 4% within his lifetime

JB
Bernanke is 66.

How long do we think Ben will live?

To 85?
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Re: Are interest rates ever going back up?

Post by jubby288 »

watchnerd wrote: Thu Jan 23, 2020 2:31 pm
jubby288 wrote: Thu Jan 23, 2020 2:10 pm FWIW, Reuters has quoted Bernanke in saying that he doesn't believe the fed funds rate will rise back to the long term average of 4% within his lifetime

JB
Bernanke is 66.

How long do we think Ben will live?

To 85?
Yes, sounds about right

So, lets say that another way

Former fed chairman Ben Bernanke believes its probable that we have at least 2 more decades of low rates


JB
Last edited by jubby288 on Thu Jan 23, 2020 3:35 pm, edited 1 time in total.
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Re: Are interest rates ever going back up?

Post by supersecretname »

It's going to be at down levels for a while

https://www.frbsf.org/economic-research ... ly-rising/

"R-star is what economists call the natural rate of interest; it’s the real interest rate expected to prevail when the economy is at full strength. While a central bank like the Fed sets short-term interest rates, r-star is a result of longer-term economic factors beyond the influence of central banks and monetary policy"
..
"My own view is that r-star today is around 0.5%. Assuming inflation is running at our goal of 2%, that means the typical, or normal short-term interest rate is 2.5%. For comparison, the median longer-run value of the federal funds rate in the Federal Open Market Committee’s (FOMC’s) most recent economic projections is 2.875% (Board of Governors 2018b). When put into a historical context, r-star stands at an incredibly low level—in fact, a full 2 percentage points below what a normal interest rate looked like just 20 years ago. This trend is not unique to the United States: Averaging across Canada, the euro area, Japan, and the United Kingdom, a measure of global r-star is a bit below 0.5% (Holston, Laubach, and Williams 2017 and Fujiwara et al. 2016)."
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Re: Are interest rates ever going back up?

Post by jtdavid »

Rates in the US are about the highest anywhere in the developed world. Given the trend towards globalization, I personally feel like its more likely for our rates to go down towards where they are in the rest of the world, versus the rest of the world coming up to us. But I dunno.
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Re: Are interest rates ever going back up?

Post by DB2 »

JoeRetire wrote: Thu Jan 23, 2020 2:16 pm
DB2 wrote: Thu Jan 23, 2020 9:36 am The Fed tried to normalize rates in 2018 (and move to "auto pilot" QT) and it only led to the worst December stock market crash since the Great Depression
Lesson: should have picked a different month...
Decembers are pretty good months historically, but I think the markets were sending a clear message and the Fed acted. Jay Powell's communication didn't help either.
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Re: Are interest rates ever going back up?

Post by Sand101 »

The 700 year interest rate trend is down, so other than wiggles it will take something pretty special to buck that trend.

https://qz.com/1787281/what-700-years-o ... l-economy/
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Re: Are interest rates ever going back up?

Post by watchnerd »

Sand101 wrote: Thu Jan 23, 2020 3:43 pm The 700 year interest rate trend is down, so other than wiggles it will take something pretty special to buck that trend.

https://qz.com/1787281/what-700-years-o ... l-economy/
This makes sense.

700 years ago even kings were often broke, large excess pools of capital were rarer, and risk sharing via corporate structures were just beginning to get created as a legal / financial mechanism.

Any kind of lending would have been far riskier, so it makes sense that the nominal return would have to be higher.
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Re: Are interest rates ever going back up?

Post by gmaynardkrebs »

nisiprius wrote: Thu Jan 23, 2020 1:29 pm In April of 2014, Bloomberg polled a panel of 68 economists on what they were forecasting for the ten-year Treasury rate over the next six months. 68 out of 68, 100%, unanimously, said it would be going up, the only question being how much.

It went down.

If 68 out of 68 economists could all be wrong, one might as well just shrug and say "nobody knows" or "it can't be predicted."
It's highly likely that 68 economists would agree on the most likely state of future interests rates, as the answer would be derived directly from current yield curve. Perhaps the question should also have asked their confidence interval.
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Re: Are interest rates ever going back up?

Post by watchnerd »

Sand101 wrote: Thu Jan 23, 2020 3:43 pm The 700 year interest rate trend is down, so other than wiggles it will take something pretty special to buck that trend.

https://qz.com/1787281/what-700-years-o ... l-economy/
"And, naturally, tomorrow. Later this decade, short-term real rates around the world will have dipped into permanent negative territory, according to the economist’s historical extrapolation. As for long-term rates, Schmelzing pinpoints 2038 as the year those go under."

30 Year Treasury auction is on 2/13/20.

Time to lock in these "soon to be multi decade high" rates now!
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Re: Are interest rates ever going back up?

Post by Portfolio7 »

ChinchillaWhiplash wrote: Thu Jan 23, 2020 9:04 am How long will they keep these rates so low? Seems like the economy is pretty healthy right now. Corporate debt is about out of control. Consumer debt has been out of control for a long time now. Just seems crazy that the Fed hasn’t raised rates hardly any in years. Are we going to be like Europe and Japan? That hasn’t worked out so well for them.
Who is 'they'? I presume you mean the Fed?

The Fed reacts to the market as well. The Fed could raise overnight rates (which is all they control) to 5% and all they would accomplish is a recession as they pushed the yield curve into a strong inversion.

Long term rates are a little over 2% now because of a lot of reasons that have little to do with the Fed and everything to do with the current economic environment. I'm sure that the day will come when long term rates rise, and inflation hits, and the Fed raises overnight rates to manage inflation back down. However, I suspect low rates will be with us, more or less, for a very long time.
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Re: Are interest rates ever going back up?

Post by watchnerd »

Portfolio7 wrote: Thu Jan 23, 2020 4:13 pm However, I suspect low rates will be with us, more or less, for a very long time.
Low real or low nominal?
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Re: Are interest rates ever going back up?

Post by gmaynardkrebs »

watchnerd wrote: Thu Jan 23, 2020 4:15 pm
Portfolio7 wrote: Thu Jan 23, 2020 4:13 pm However, I suspect low rates will be with us, more or less, for a very long time.
Low real or low nominal?
I think that every Central Bankers' dream today is higher nominal rates and lower real -- ie, higher inflation coupled with low real rates to stimulate the economy. Normally, CBs get what they want
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Re: Are interest rates ever going back up?

Post by Portfolio7 »

watchnerd wrote: Thu Jan 23, 2020 4:15 pm
Portfolio7 wrote: Thu Jan 23, 2020 4:13 pm However, I suspect low rates will be with us, more or less, for a very long time.
Low real or low nominal?
I was thinking in nominal terms, but also real rates. The deflationary (for the US) global cycle seems to me likely to run a couple decades more. Investment is shifting in terms of it's relationship to economic growth. Global markets are more integrated and efficient. Who knows, there may be a lot of somethings I'm overlooking, but one thing I do know - I'm not trying to figure out when we get back to normal. Uncertainty IS normal.
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Re: Are interest rates ever going back up?

Post by JonnyB »

nisiprius wrote: Thu Jan 23, 2020 1:29 pm If 68 out of 68 economists could all be wrong, one might as well just shrug and say "nobody knows" or "it can't be predicted."
There are about 21,000 economists working in the US according to the BLS. I hardly think 68 is a representative sample. And who knows how biased that sample might be. Was it self-selecting? There certainly were plenty of economists saying otherwise back then.

Perhaps the better lesson is just don't listen to Bloomberg polls.
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Re: Are interest rates ever going back up?

Post by 02nz »

JonnyB wrote: Thu Jan 23, 2020 5:42 pm There are about 21,000 economists working in the US according to the BLS.
So one could get at least 42,000 answers to this question. :wink:
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Re: Are interest rates ever going back up?

Post by MotoTrojan »

BogleFanGal wrote: Thu Jan 23, 2020 2:01 pm
GrowthSeeker wrote: Thu Jan 23, 2020 9:18 am If it were suddenly the 1970s, but somehow there was an internet and a similar forum (or bulletin board) back then, we would currently be reading a post entitled:
"Are interest rates ever going back down?"
exactly what I was thinking.... crazy nosebleed rates. I could imagine the threads :D
Hedgefundie’s superb adventure. 3x inverse/bear 20 year treasuries, and 3x S&P500 ;). Would’ve been crushed.
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unclescrooge
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Re: Are interest rates ever going back up?

Post by unclescrooge »

nisiprius wrote: Thu Jan 23, 2020 1:29 pm In April of 2014, Bloomberg polled a panel of 68 economists on what they were forecasting for the ten-year Treasury rate over the next six months. 68 out of 68, 100%, unanimously, said it would be going up, the only question being how much.

It went down.

If 68 out of 68 economists could all be wrong, one might as well just shrug and say "nobody knows" or "it can't be predicted."
Didn't God create economists to make weather forecasters look good?

Or was is the other way around?
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burt
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Re: Are interest rates ever going back up?

Post by burt »

DB2 wrote: Thu Jan 23, 2020 9:36 am The Fed tried to normalize rates in 2018 (and move to "auto pilot" QT) and it only led to the worst December stock market crash since the Great Depression, so they changed course rather quickly to cut rates and go back to QE in 2019. I always knew the rate hikes the Fed wanted would not be able to happen. With this much debt, it's impossible to do unless you wreck the economy and the markets. I see rates going back down to zero and incredibly massive QE in the next downturn. Usually they cut 400-500 basis points in a recession and that is not possible with the Fed funds rate around 1.5 so they will have to rely on A LOT of QE and probably MMT or as Ben Bernanke once called "helicopter money". The question would become, does that lead to more inflation than they want and would it require raising rates to control the inflation (and that wouldn't look pretty). As we can continue to rack up lots and lots more debt with little inflation, then rates can continue to stay low. All hypothetical as this point, but the Fed has painted themselves into a bad corner in my opinion for this reason but others too.
Yes, I always thought that when you printed money, interest rates and inflation go up.
Maybe it's just a matter of time.
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