25 Years Of Higher Interest Rates Ahead?

2025-05-03 00:35:00 ET

Summary

• As a result of recency bias, where we assume the recent past is a permanent state of affairs, many believe near-zero interest rates are "normal."
• If history is any guide, interest rates will rise back to the historic range between 5.75% and 8% and linger there for the better part of two decades.
• The return of Treasury yields to the historically "normal" range of 4% and higher has doubled the Federal interest payments on Federal debt.
• The interest paid by households has also soared for the same reason: not just because interest rates rose, but because the borrowed money (debt) being serviced exploded higher due to low interest rates.

Interest rates are linked to inflation, but they're also linked to risk.

As a result of recency bias , where we assume the recent past is a permanent state of affairs, many believe near-zero interest rates are "normal." They aren't. As the chart of 10-year US Treasury yields - a proxy for interest rates throughout the economy - illustrates, rates in the 3% or lower were an anomaly that only occurred in the relatively brief period of 2011-2022....

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