The short-term rates controlled by the Federal Reserve and the long-term rates set by the bond market both declined very quickly during and after the last financial crisis. But since then inflation has been low, economic growth rates are modest and interest rates have never returned near their prerequisite levels.
The 10-year Treasury note was as high as 4.85 percent in 2007, Treasury data The show. This has not been more than 3 percent in the last five years. And the federal funding rate, the short-term interest rate set by the Federal Reserve, reached 8.2 percent in 20 years. It increased to just 2.5 percent in 2018 and 2019, and is now between 1.5 and 1.75 percent, according to the report Fed.
These are the lowest, these long, rates that are not normal.
The United States has entered dangerous territory, A paper Emphasis released last month by the Federal Reserve. The study, written by Fed economist Michael Kelly, suggests that current levels of recession will be acute policy hesitation if the next recession actually decreases.
Or historically, interest rates continue to decline significantly during the recession and for two years thereafter, Mr Kiley wrote. But with lower rates than now, he said, “plain arithmetic” shows that short-term interest rates in recessions and both for bonds will come close to zero – even negative. That, he says, would bring the United States “closer experience to Europe and Japan,” where many long-term bonds already pay negative interest.
As I wrote several years ago, this is similar to what you would expect from gangsters: hand me your money, leave me some of it, and then you get what’s left over. Yet it has become commonplace in the global bond market.
This may not be the case in the United States, Mr. Rosenberg said, “because of legal and logistical limitations.”
He said, “Negative rates are taxes on money.”