Zero forever

WHICH do central banks hate more: low interest rates or rising inflation? They really, really hate low rates, that’s for sure. Searching the Federal Reserve’s website for “reach for yield” returns a nice long list of speeches in which Fed officials warn against the dangers of a long period of low rates. And yet…

A piece in this week’s print edition looks at the outlook for interest rates. Despite recent ticks upward in the expected path for policy rates in America, markets think both America and Britain will by 2016 be closing in on nearly a decade of ultra-low rates. The path forward for the euro area is even flatter; markets don’t anticipate the ECB getting back to 2% until at least 2020. And this is all assuming that things go according to plan. In 2007 the Bank of Japan thought it was close to putting 13 years of sub-1% rates behind it; the onset of global crisis meant it is instead nearly 20 years into its liquidity trap.

Two decades appears to have been enough. Alone among…Continue reading

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