Economics, Portfolio Optimization, and Technical Analysis
Joined: 28 Dec 2005
|Posted: Sat Jan 07, 2023 9:05 pm Post subject: Interest Rates to stay high
Economy & Politics
Summers doubts the U.S. will return to a low-interest-rate environment
Published: Jan. 7, 2023 at 4:36 p.m. ET
By Greg Robb
Former treasury secretary sees ‘tumult’ as bond market comes to grip with new reality
Former U.S. Treasury Secretary Lawrence Summers said Saturday that he doesn’t think the economy will return to the low-interest-rate environment that was interrupted by the COVID pandemic in 2020-2021.
Summers had earlier predicted that low rate environment which he had labeled “secular stagnation.
In a presentation at the American Economics Association meeting in New Orleans, Summers said “my guess is we will not return to the era of secular stagnation” once inflation has been tamed.
The return of low interest rates has been the base case for the traders in the bond market.
In an interview with Bloomberg about his forecast, Summers said this will lead to “tumult” in the bond market this year when traders recognize their assumptions are incorrect.
“This is going to be remembered as a ‘V’ year when we recognized that we were headed into a different kind of financial era, with different kinds of interest-rate patterns,” he told the agency.
In his talk to the AEA conference, Summers compared the current economic environment to the Second World War. As the war was coming to a close, economists generally thought that the economy might slump back into the doldrums seen after the Great Depression in 1929.
But instead of falling into a ditch after the war, the U.S. economy took off, growing at a strong rate spurred by the growth of the suburbs while the government completed the national highway system and other large infrastructure products.
In his talk, Summers said that interest rates will stay high once inflation cools because of the large amount of government debt issued during the pandemic.
Tension between the U.S. and China will keep defense spending high, he added.
In addition, switching to a greener economy will lead to more spending, Summers added.
Harvard economist Ken Rogoff, in a separate talk at the conference, agreed with Summers.
“Very low interest rates, based on history and logic, probably won’t return,” Rogoff said.
See also: Goldilocks scenario? Slower increases in worker wages could help U.S. economy avert a recession.
See original version of this story
Read full story
The jobs report confirms that the soft landing has arrived — if the Fed has the wisdom to embrace it
Fewer hours worked plus smaller pay raises mean the Federal Reserve has weakened the labor market and licked inflation.
More On MarketWatch
Fed’s Bostic backs raising interest rates to 5.25%, says he is agnostic about size of expected February move
Vast majority of 16,000 canceled mail-in ballots in Pennsylvania were from registered Democrats
About the Author
Greg Robb is a senior reporter for MarketWatch in Washington. Follow him on Twitter @grobb2000.
Copyright © MarketWatch, Inc. All rights reserved.
By using this site you agree to the
Do Not Sell My Personal Information Limit the Use of My Sensitive Personal Information
You are approaching your article limit.
GET UNLIMITED ACCESS
|All times are GMT - 8 Hours
You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum
You cannot vote in polls in this forum