Economics in the Past Decade (Interest Rates)

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     One of the most major shifts in the economy over the last decade was the steady decrease in interest rates. At the start of the last decade The Congressional Budget Office projected that the yield on 10-year Treasury bonds would gravitate around an average of 5%. Yet, it is currently sitting at a little more than 3%. There was a point in 2019 where it even dropped below 2%. This figure is the best testament to the trending decline of interest rates in America. This steady decline in the natural interest rate allows for the U.S. government to take on a greater federal debt, and reduces borrowing costs. On the other hand, it puts the Federal Reserve in a tough spot, especially if we find ourselves amidst another eminent recession. While these low interest rates can evidently boost the economy, there can also be many adverse affects. Inflation is a precise example and a major issue that the U.S. is enduring. Inflation tends to have an inverse relationship with the interest rates. As the interest rates decrease, inflation shows a pattern of increase. This is the case because low interest rates allow people to borrow more money, therefore they have more money to spend. Ultimately, with more money being spent, the value of the currency will notably decrease. Rising inflation can imply a nearing recession because businesses respond to higher costs by reducing production and raising prices. If the Federal Reserve then preemptively reacts in the form of rate hikes to stop the rising inflation, their move could help provoke a recession. It is not clear that we are in current danger of a recession, but there are some tell-tale signs that one could be approaching in the near future.


U.S. 10 Year Treasury (1981-Current)



If you would like to learn more, visit these links where I got my information from:

www.brookings.edu

www.forbes.com

www.cnbc.com




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