All articles tagged with #natural rate of interest
Deutsche Bank reinterprets Knut Wicksell’s natural-rate idea to explain why investors still fund the U.S. national debt despite large deficits: the U.S. economy’s strength and productivity, especially in technology and AI, keep high returns on equity, making official rates seem low by comparison. But if growth remains weak relative to deficits and risk perceptions rise, funding costs could rise as investors recalibrate.
The price of money, reflected in interest rates, is going up after decades of decline. While central banks like the Federal Reserve have control over interest rates, the price of money is ultimately determined by the balance of supply and demand. Factors such as weaker growth, shifting demographics, income inequality, and technological advancements have contributed to the decline in interest rates. However, these factors are now reversing, leading to a projected rise in the natural rate of interest. This shift will have significant consequences for the US economy, impacting housing prices, equity markets, and the US Department of the Treasury. Higher borrowing costs will also affect savers and bondholders, while providing the Federal Reserve with more room to stimulate growth during recessions.