The federal government’s various attempts to try to reduce borrowing costs are bound to fail.
The federal government, financial markets and most Americans are all in a state of denial about interest rates. Whenever someone goes on business TV, gets a mortgage or makes a long-term debt projection, I usually hear some variation of the phrase, “when rates go back down.”
I am sorry to be the bearer of bad tidings, but rates are not going back down, especially to the levels of the 2010s. And almost any attempt to try to force them down — what we economists call financial repression — will only bring pain.
With higher debt, global decoupling, a more uncertain inflation outlook and the natural economic cycle, rates are probably going to stay high. That poses a big problem for President Donald Trump and his administration’s plans for the economy. Not only do higher rates make it more expensive for the federal government to borrow, but they also do the same in the private sector, reducing economic growth. Perhaps most worrying for the administration, they keep the cost of housing high.
Continue reading the entire piece here at Bloomberg Opinion (paywall)
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Allison Schrager is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.
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