The longer interest rates stay at zero, the longer this assumption gets baked into the structure of the economy and the more chaos that'll be unleashed when and if they finally go up. There were no interest rate hikes between 2006 and 2015, and interest rates have been at zero for 8 out of the last 13 years.
It's easy to blame COVID for the latest rate cut, but interest rates were already dropping in late 2019. The Fed slashed rates 3 times from July-December, and then went straight to zero in March. I've heard (from finance industry professionals) that the reason was that corporate debt loads rapidly become unsustainable when interest rates go up. They need to roll their debt when it comes due, but debt levels are now such that they rapidly become insolvent when borrowing costs rise.
I'm seeing more people reach the obvious conclusion that interest rates are simply not going to rise. The Fed has an incentive to keep them low - they'll get mass bankruptcy and mass unemployment otherwise, contrary to their full-employment mandate. The government has an incentive to keep them low, since it keeps borrowing costs on the rapidly-ballooning federal debt low. Retirees have an incentive to keep them low, feeding 401K bubbles that they need to live on. Young adults have an incentive to keep them low: it keeps student loan and car payments manageable, and inflation reduces the real value of their debt. Homeowners have an incentive to keep them low: the value of their home will drop if mortgage rates go up. The only people with an incentive to see them go up are vulture funds & shorts, who nobody likes anyway, and prospective homeowners, who are largely the same people with loads of student loan debt that they'd like to see inflated away.
If everybody has an incentive for rates to stay low, they will stay low. This ends in hyperinflation.
It's easy to blame COVID for the latest rate cut, but interest rates were already dropping in late 2019. The Fed slashed rates 3 times from July-December, and then went straight to zero in March. I've heard (from finance industry professionals) that the reason was that corporate debt loads rapidly become unsustainable when interest rates go up. They need to roll their debt when it comes due, but debt levels are now such that they rapidly become insolvent when borrowing costs rise.
I'm seeing more people reach the obvious conclusion that interest rates are simply not going to rise. The Fed has an incentive to keep them low - they'll get mass bankruptcy and mass unemployment otherwise, contrary to their full-employment mandate. The government has an incentive to keep them low, since it keeps borrowing costs on the rapidly-ballooning federal debt low. Retirees have an incentive to keep them low, feeding 401K bubbles that they need to live on. Young adults have an incentive to keep them low: it keeps student loan and car payments manageable, and inflation reduces the real value of their debt. Homeowners have an incentive to keep them low: the value of their home will drop if mortgage rates go up. The only people with an incentive to see them go up are vulture funds & shorts, who nobody likes anyway, and prospective homeowners, who are largely the same people with loads of student loan debt that they'd like to see inflated away.
If everybody has an incentive for rates to stay low, they will stay low. This ends in hyperinflation.