Four reasons for low and dropping long-term interest rates

Professor Langdana says there are more reasons to worry than be happy about long-term interest rates falling

By Farrokh Langdana, Director, Executive MBA Program & Professor of Finance and Economics  

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  1. Yield curve inversion. Lower long rates may indicate an impeding economic slowdown. Market Reaction: Worry.
  2. Massive "flight to safety" capital surging into the US (and Germany and France) causing the supply of loanable funds to soar, and consequently pushing down domestic interest rates. Market Reaction: Worry.
  3. A significant and positive supply-side shock driven by an increase in productivity caused by lower taxes and/or deregulation. Market Reaction: Joy.
  4. Low interest rates resulting from the hangover of the Great Recession and the shocking liquidity generated by years of Quantitative Easing. Market Reaction: Ambivalence.


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