20-year Interest Rate Forecasts

On September 24, 2014, I wrote about Joseph Stiglitz' review of Martin Wolf's latest book. 

In that article, the topic of interest rate forecasts came up. 

I had written that the Geneva Report was predicting that interest rates worldwide would have to stay low for a "very, very long" time to enable households, companies, and governments to service their debts."

An article published in the Financial Times on April 18, 2015 puts numbers to these predictions. The prediction is from Micheal Gavin at Barclays. Michael Gavin holds a PhD in economics from MIT, according to his LinkedIn profile.

Quoting from this article, "Mr Gavin estimates that all things being equal the natural real interest rate will rise by about 1 percentage point over the next five years, 2.25 percentage points over the next decade, and 3.5 percentage points over the next two decades."

Critics are likely to dismiss these forecasts as being unreliable. After all, who can say what the world is going to look like in 20 years? Nevertheless, I think that these forecasts ought to figure into one's thinking.

For reference, as of the time of this writing, the 10-year Treasury yield stands at 1.96%. The general expectation is for the Fed to raise interest rates sometime in the second half of 2015. This would be the first rate hike in nearly a decade. The Fed has held the Fed funds rate at close to zero since the Great Recession of 2008/2009.

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