This is what many expect, though the fact that an imminent return towards
historically normal interest has been widely expected for the past six years should invite scepticism.
Not exact matches
Like central bankers elsewhere, Poloz is trying to figure out how to bring
historically low
interest rates to more
normal levels without inadvertently triggering another downturn.
We allow that short - term
interest rates may be pegged well below historical norms for several more years, and we know that for every year that short - term
interest rates are held at zero (rather than a
historically normal level of 4 %), one can «justify» equity valuations about 4 % above historical norms — a premium that removes that same 4 % from prospective future stock returns.
For example, if a «
normal» level of short - term
interest rates is 4 % and investors expect 3 - 4 more years of zero
interest rate policy, it's reasonable for stock prices to be valued today at levels that are about 12 - 16 % above
historically normal valuations (3 - 4 years x 4 %).
The following graph plots the
historically normal PE ratio (the dark blue line) in conjunction with 10 - year Treasury note
interest.
We allow that short - term
interest rates may be pegged well below historical norms for several more years, and we know that for every year that short - term
interest rates are held at zero (rather than a
historically normal level of 4 %), one can «justify» equity valuations about 4 % above historical norms — a premium that removes that same 4 % from prospective future stock returns.
During the past several years, Federated has had to regularly issue money market fund fee waivers in order to keep funds at a neutral or positive yield, versus
historically — in a more
normal historical
interest rate environment — being able to count on money market funds to generate higher profits.
The following graph plots the
historically normal PE ratio (the dark blue line) correlated with 10 - year Treasury note
interest.
The latest readings reflect a slow but steady march toward
historically normal appreciation and
interest rates, producing an HOI typical of the period before the mid-2000s boom.