INSIGHTS

Rating the rate of rerating of rates

Rating the rate of rerating of rates

What is “normal” in financial markets? Our latest Sound Thinking from CIO Ian Toner provides a unique perspective on how investors can think about characteristics of the market that are considered normal. Ian applies this to one of the most recent examples of what is normal – interest rates.

The question that has been routinely asked is, “when will interest rates return to normal”?

  • There have been few more consistent trends in financial markets than falling interest rates from 1981 to 2013
  • The removal of hyperinflationary pressures was a key to this trend, which was supported by the computing revolution and the rise of emerging markets
  • After the market crash in 2008, central banks threw open their vaults, expanded their balance sheets, and pushed interest rates to all-time lows
  • As a consequence of extraordinary monetary policy, inflation hawks have predicted an abrupt end to the low inflation and interest rate environment