An accessible guide to the natural rate of interest, why it is likely going up, and what that means for the future of the global economy and markets. Ask most people who sets interest rates, and they''ll say it''s the central bank. At a fundamental level, though, decisions by the Federal Reserve, European Central Bank, and their peers around the world are constrained by the natural rate of interest. The natural rate - the interest rate that balances supply of saving and demand for investment, whilst keeping inflation low and employment high - has moved from academic obscurity to a central role in monetary policy, and the operation of the economy and financial markets.For almost half a century from the 1970s to the 2010s, the natural rate in the US and other advanced economies fell. In the last decade, it has started to rise. In the years ahead, the cost of borrowing has further to climb. That shift from falling to rising borrowing costs reflects seismic shifts in demographics, technology, and geopolitics. In the years ahead, risk factors from war to artificial intelligence and climate change could accelerate its rise. For everyone from Ministers of Finance balancing the books to Wall Street titans making the next big bet, the shift from falling to rising borrowing costs has profound consequences. In a world where money is more expensive, the cost of managing it poorly gets higher.In The Price of Money, the Bloomberg Economics team explain the evolution of the natural rate, the forces driving it, where it is headed, and what that means for everything from government debt to saving for retirement.
Industry Reviews
"The authors of this short and thought-provoking book explain how economists weigh up the complex forces that determine global savings and investment and ultimately, the real interest rate. Look out for the effects of debt, heat, robots, and war that they forecast will push up the 'price of money'." -- Wendy Carlin, Professor of Economics, University College London
"There is no more important price than the long-term rate of interest. It has been falling for almost half a century, easing the burden of debt. The Price of Money explains why and predicts a reversal with profound effects for our finances, our societies, and our futures on the planet. You do not have to agree with every assumption in this comprehensive account, but you need to think about the consequences." -- Chris Giles, Economics Commentator,
Financial Times
"Incisive examination of why the natural rate of interest matters, its main drivers, and where it's headed-required reading for anyone who is a serious investor." -- Bill Dudley, Bloomberg Opinion columnist, former President of the Federal Reserve Bank of New York
"The natural rate of interest is hugely important as a North Star for the economy but frustratingly impossible to observe. This clear and concise book sheds light on it with a mixture of history, modeling, and analysis. The authors make a compelling case that the natural rate is headed higher, creating new challenges for investors, governments, and companies. Reading this will help to prepare them." -- Simon Rabinovitch, US Economics Editor, The
Economist
