09-06-2016, 12:07 PM
Lower rates are not just the result of central banks buying billions of dollars worth of bonds over the years in the United States, Europe, and Japan, according to Brian Barnier, head of research at ValueBridge Partners and founder of FedDashboard.com. “There’s more cash in the world and less need for cash in production,” he said. Relative to disposable personal income, household and nonprofit cash holdings are up since the 1990s. But in the past decade, debt’s share of personal income has steadily decreased.
Why rates could stay low no matter what the Fed does
But how much do we really know? The president of the Federal Reserve Bank of San Francisco, John Williams, set the tone for the gathering of central bankers at Jackson Hole, Wyo., last month when he published a widely read letter suggesting the long-run “natural” rate of interest has come down drastically in the past 25 years. This is the rate that would keep inflation steady if the economy were operating at full capacity, and provides the basis for where rates ought eventually to stabilize. His letter was backed by an updated version of a model he first published more than a decade ago, with two Fed colleagues, Kathryn Holston and Thomas Laubach. The model shows the long-run interest rate has come down not only in the U.S. but also in the eurozone, Canada and the U.K. Secular stagnation has taken hold of the developed world, as one of their charts shows.
Think You Know the Natural Rate of Interest? Think Again - Real Time Economics - WSJ