Who doesn’t love spending their morning trying to understand what theFederal Reserve is doing? Oh, no takers? Well, let’s at least look at inflation trends and where I expect interest rates to go.
Thanks to COVID-related supply chain disruptions, inflation has stabilized around 3% (instead of the Fed’s magic 2%). Those baby boomers are also part of the problem. As they age into retirement, capital availability is going to decline and the Fed’s going to have rethink their strategy.
I doubt we’ll see interest rates drop for the next few years, so if you’re planning on borrowing some money…you might want to get on that ASAP.
According to Zeihan there is a great demand for capital as our nation rebuilds [increases] its industrial infrastructure as a result of the Covid supply chain collapse & US disentangles itself from the global supply chain. Until this industrial infrastructure expansion is completed it will drive inflation.
Remember the 18% interest rates of the 80s (18% or higher). Rates were up for many many years, YEARS. I do remember the 12%, 13%, 14% interest rates, yes, very clearly. Heck, 7% is nice.
Rates and taxes, taxes will not help. Why would they keep the interest from going up. Maybe, just maybe, it’s spending? Higher taxes, higher spending, welcome to our goverment.
Yes, I took Econ and it was almost my major. Supply-side economics, it always sounded good but it doesn’t work.
But the corporations will build more factories because of US government infrastructure expenditures. The economies of scale produce more wealth and drop the inflation rate further. The GDP grows faster. Demand grows. That is why the balance between taxation and interest rates matters.
A lot of that new & upgrading of existing infrastructure is financed by corporations. That financing will drive interest rates higher. And the construction will cause demand side inflation as raw materials will be diverted into construction materials and electrical & electronic components necessary for those factories & automation equipment for the factories. To say nothing of the thousands of extra workers salaries needed to build & equip the infrastructure will flow into the economy. And the increase demand for those workers will result in higher wages also.
I side with Zeihan on this opinion.
I view the low interest rates of 1995 to 2020 as an aberration. A result of globalization and cheap, though longer Chinese labor.
More factories mean more goods. More factories mean more competing products. More demand means the factories are paid for sooner. Inflation will come down longer term.
I thought about Zeihan’s claim that rates will stay high and go higher. He is wrong. With more demand paying for factories and exporting on the rise as inflation comes down rates will soften.
Over ten years from now all of this gets reset with higher rates and higher taxes because mom and pops will be wealthy enough to borrow more in relative terms.
No he says they will be higher until the US industrial plant is built. Then the golden era arrives with local high technology supply chains that are productive and use less energy. That we will have a domestic manufacturing system that is immune to international shocks.
Hey you just said you were going to greatly raise taxation. Reduced demand.
Corporations do not worry about taxes because they know they do not pay them. All the “discussions” they have about taxes are about personal taxes (not corporate taxes).
Reduced demand is only at the fringes–and is temporary. As “new and improved” production facilities become operational, costs go down overall–thus lowering prices. So those in the market who could not afford the old high prices will likely be able to buy at the new lower prices.