What record-low interest rates mean – By Felix Salmon (Axios) / March 9 2020
Data: FactSet; Chart: Axios Visuals
U.S. long-term interest rates have plunged to unprecedentedly low levels — lower even than was seen at the depths of the global financial crisis.
Why it matters: The economic world has never looked like this — not in the U.S., anyway. Rates this low don’t make rational sense, and they speak to severe economic pessimism and dislocation.
- The bottom line: This is the market’s way of begging Treasury secretary Steven Mnuchin to invest in projects that will improve America’s economic health over the long term.
Driving the news: For a homebuyer looking at 30-year fixed mortgage rates of 2.75%, the current state of affairs can seem unambiguously positive. But these rates violate common sense intuitions of what money is worth.
- Consider a $1,000 tax refund that you’re expecting from the government this month. Would you perhaps prefer $1,5o0, payable to you (or your heirs) in the year 2050?
- Very few individuals would accept that offer. After all, $1,500 today buys only as much as $740 would have bought 30 years ago.
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