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The Zero Interest Rate Decade

Over the last few years I’ve repeatedly stated that interest rates are likely to remain at zero when the next recession occurs.  The consensus still sees rate hikes occurring in mid-2015, but I don’t necessarily agree.   And it looks like I am in some pretty good company now.  David Levy, Chairman of the Levy Forecasting center had some similar comments in a recent research piece titled “The Zero Interest Rate Decade”.

In case you’re not familiar, the Levy Center has a strong Post-Keynesian influence and researchers there have views that are highly complementary to my own.  We use very similar frameworks for understanding the financial system and focus on things like accounting and sectoral balances much more so than other analysts tend to.  I’m not so bearish at present on economic growth, but that could change within the time frame mentioned by Levy.  Anyhow, here’s some of the highlights:

  • the Fed has made it clear that it will not raise rates for a while, likely a year or more, and with each passing quarter the global economy will become even less able to withstand rising U.S. interest rates.
  • Thus, interest rate hikes are unlikely to occur before the next global recession, which has a high probability of beginning between six and twenty-four months from now, and more likely in the former half of that range than the latter.
  • Fed hikes would be unthinkable during the next recession, which will be long, deep, accompanied by unusual financial problems in most of the world, and deflationary.
  • The deflationary and severe nature of the next global recession will lead to a long, troubled aftermath during which the Fed will not entertain the thought of lifting rates off the floor.


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