Here is why I am so adamant that (real) interest rates will fall
It's about our collective negotiation about the value of saving, the debt capacity of our economy and low real growth prospects.
From an asset pricing perspective, the true big story of 2022 is not the inflation spike. It is the brutal real interest rate shock, which is driven by the conflict between deficit addicted fiscal policymakers and legacy focused monetary policymakers.
Rarely have interest rates risen so sharply over such a short period of time. Long term inflation expectations have risen as well, but they remain more anchored.
While I did acknowledge the risk of rising real interest rate driven by the fiscal vs. monetary setup in this article, I have mostly been writing articles all year long calling the push in real interest rates unsustainable. And boy, could I have been more wrong? But this is a hill I am willing to die on. Interest rates are hitting limits in terms of how much the economy is likely willing to afford to pay to savers/creditors, particularly given dismal growth prospects, and it appears unlikely we are seeing a shift in terms of renegotiating the economic process.
Interest rates determine the share that savers/creditors receive in our collective wealth
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