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Markets & Economy

The Low Rate Conundrum

Monetary Policy
The Low Rate Conundrum
March 4, 2013

LONGER-TERM interest rates have been low for quite some time now across much of the rich world, and there is little sign of an upturn any time soon. This is disconcerting. As Ben Bernanke put it in an interesting speech delivered Friday, there are two reasons to worry about long-term rates: that they’ll rise and that they won’t. As rates remain low, financial market participants may be encouraged to “reach for yeild”, by taking dangerous risks and leveraging up. Alternatively, if rates rise sharply then there could be large financial losses in the system. As Mr. Bernanke notes, the two risks are mutually reinforcing; reach-for-yield behaviour may increase exposure to losses in a rising-rate world. Read More The Low Rate Conundrum