Four reasons for low and dropping long-term interest rates
Professor Langdana says there are more reasons to worry than be happy about long-term interest rates falling
By Farrokh Langdana, Director, Executive MBA Program & Professor of Finance and Economics
Faculty Blog: http://www.business.rutgers.edu/faculty/farrokh-langdana
Follow Prof. Langdana on Twitter: @FSCwithFarrokh (Fireside Chats with Farrokh)
- Yield curve inversion. Lower long rates may indicate an impeding economic slowdown. Market Reaction: Worry.
- Massive "flight to safety" capital surging into the US (and Germany and France) causing the supply of loanable funds to soar, and consequently pushing down domestic interest rates. Market Reaction: Worry.
- A significant and positive supply-side shock driven by an increase in productivity caused by lower taxes and/or deregulation. Market Reaction: Joy.
- Low interest rates resulting from the hangover of the Great Recession and the shocking liquidity generated by years of Quantitative Easing. Market Reaction: Ambivalence.
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