I’m arguing with macroblog about about this picture:

Interest rates

He said:

What’s the story here? That the long string of federal funds rate cuts beginning in January 2001 caused the decline in long-term interest rates — including mortgage rates — that commenced a full half-year (at least) before the first move by the FOMC? That low levels of short-term interest rates have kept long-term rates well below their pre-recession peaks? Then what to make of the fact that rates at the longer end of the yield curve have barely budged in the face of a 425 basis point rise in the funds rate target? Maybe it’s “long and variable lags”? Should we then be expecting that big jump in long-term rates any day now? I guess it’s still a conundrum. But maybe, then, we should be a little circumspect about the finger pointing?

My answer is:

Absolutely not!

The long-term rates are trending down until they go under 1%, like Japan is today.

It somehow happened that Japan managed to be 15 years ahead of the rest of developed world. We are all going into long deflationary period. Japan is waiting us there.

Maybe Japan will be the first of us to jump out of sub-1% zone? It could be. First in – first out…

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