Do We Have Negative Interest Rates In Our Future?
For many years the team at Intellus Advisors has been far more concerned about the possibility and potential effects of extremely low interest rates than about rising rates. Yes, higher interest rates can cause market volatility—particularly if they rise quickly—but generally they correlate with better economic growth and a higher demand for money. Inflation is always a risk in that scenario, but it is one we are familiar with in our investing lifetimes. That is not the case for extremely low or even negative interest rates.
"Are we going to be like Japan?" is a question we have asked ourselves over the years. So far the United States has avoided the decade's long economic malaise and deflation that still afflicts Japan, but other countries have not been so fortunate. Germany, France, and many other European countries have had exceptionally low or negative interest rates for years now. The accepted reason for this is primarily the policy of central banks to keep rates exceptionally low to try to spur economic growth. That policy hasn't worked out that well so far.
A recent article by Joachim Fels, Global Economic Advisor at investment firm PIMCO, tackles the negative interest rate question from a demographic perspective. He makes the case that we could be entering an era when the natural level of nominal interest rates will be negative.
Please contact us if you have any questions or would like to discuss how this might impact your investment perspective.