This week the Fed decided to lower interest rates by 0,25% down to 2,25%. I’ve argued before that low interest rates are the new normal and I take this as further confirmation. As I’ve outlined in a previous post, average interest rates have been falling in America over time and the average for the 2010’s so far is 0,46%. Given that the Fed is lowering rates and the ECB has promised to leave rates be for a while I’d say it’s fair to say that rates are likely to remain low for the foreseeable future. What does that mean?
Well for starters, there are increased risks in my opinion of increasing debt loads, both public and private as these are cheap to maintain. Secondly, financial markets will tend towards more risky securities and products which could potentially increase the risk of another financial crisis. Finally, I believe it can cause increased inequality as the wealthy tend to use their money to invest whereas the less wealthy tend to save in bank accounts, and low interest rates hurt saver while it can dramatically increase the earnings of those who leverage their investments.
If you liked this blog post you can read my previous posts on economics here, and come back next week for a new post.
Written by Karl Johansson, Founder of Ipoleco
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