John Michaelson on the trouble with ultralow interest rates

Superlow rates function like Robin Hood in reverse.  They take from retirees and frugal working people who can’t get a decent, risk-free return on their savings and give to the rich, who own most of the appreciating assets.  Would-be home buyers might be clamoring for rate cuts, but low mortgage rates don’t make homes cheaper when we can’t (or won’t) increase supply.

Cheap money promotes unhealthy consolidation in the business world, sustains staid corporate incumbents at the expense of innovative newcomers, and promotes the financialization of the economy.

In short, bankers and private-equity firms love cheap money.  The rest of us get very little out of it.

And yet the Fed’s every instinct is to return to low interest rates.  Its decadelong adherence to low rates and quantitative easing wasn’t based on empirical evidence.  Rather it was based on theoretical models and untested academic dogma.  Unfortunately, the Fed is still dismissive of real-world evidence that ultralow real rates are associated with anemic growth.

~ John Michaelson, Michaelson Capital Partners, "The Era of Low Interest Rates Is Over. Good Riddance.," Barron's, December 7, 2024