VGSH - James Grant: Rates Are Going Much Higher. Is He Right?
2024-06-14 07:50:00 ET
Summary
- While interest rates fell during the Depression, economic growth and inflationary pressures remained robust.
- Rising debt levels, increased deficits, productivity, and wage suppression erode economic growth, not support it.
- Even if Grant is correct and increasing debt levels and deficits do cause higher rates, central banks will take actions to artificially lower rates.
Recently, James Grant, editor of the Interest Rate Observer, was asked about his outlook for interest rates. He sees interest rates moving in a cyclical pattern, potentially rising for another multi-decade period. Grant bases his view on historical observations rather than a mystical belief in cycles. He states that finance has shown a cyclical nature, moving from extremes of euphoria to revulsion in various asset classes. Therefore, he proposes that persistent inflation, increased military spending, and significant fiscal deficits could drive rates higher. The Fed’s target of a 2% inflation rate and the electorate’s preference for policies that lead to inflation also contribute to this trend.
Let me state that I have a tremendous amount of respect for Grant and his work. However, I can’t entirely agree with his view. I will focus today’s discussion on the outlook for interest rates based on the two bolded sentences above....
James Grant: Rates Are Going Much Higher. Is He Right?