No Problem: Just Keep Rates Low

Jonathan D. Miller

Strip away all the rhetoric about the “great economy”–real estate markets and the stock market have been living off abnormally low interest rates since the deep 2008-2009 recession. After a record of 10 years and counting between recessions will a downturn be kept at bay indefinitely? And will this apparent new normal of low interest rates enable worry-free piling on of debt and ongoing lowering of investment risk? Then again is economic growth, which peaked around 3%, and now hovers around 2% really so “great”?

Despite the record federal deficit, record corporate debt, and consumers back to credit binging—we’re told to relax because of low rates. It’s all about low rates and keeping rates low. After some reasonable rate upticks given extremely low unemployment, corporate earnings gains spurred by tax cuts, and the stock market advances, the Federal Reserve even reversed that course last year, possibly cowed by a President with an eye on re-election. But why not? Inflation, including wage gains, has been anemic. With rates so low where else can you invest to get a decent yield, but in stocks and riskier plays? And that’s okay for now, because of the low rates.