One asset manager believes interest rates will remain at record lows for “ever” despite recent efforts to normalize policies by central banks around the globe.
Julian Howard of GAM Investments spoke on CNBC about “Squawk Box EuropeLast week, he stated that it was “entirely consistent historically talk about low rate forever.”
Howard is GAM’s lead investment director, multi-asset strategies. The company has assets of 103 billion Swiss Swiss Francs ($112billion).
He was cited researchPaul Schmelzing (economist and visiting scholar, Bank of England) was the author. The paper was published by Schmelzing in 2020.
The research looked at interest rates globally dating back to the 14th centurySchmelzing predicted that real rates would soon be permanently negative, and he identified a downward trend.
Howard stated that the recent lower rates were a result of a long-term trend in yields declining over a prolonged period.
He spoke out about the economic harm caused by the climate change pandemic and the coronavirus virus pandemic. This is expected to have a negative impact on interest rates.
Howard stated that there is no environment in which the central bank can normalize interest rates, 1990-style, when there will be no growth.
Howard believed that the Federal Reserve would raise interest rates only in the second quarter of 2022.
Low interest rates can pose risks
CNBC spoke Tuesday with Rep. Jim Himes from Connecticut, who said that high interest rates and “free money”, which we’ve seen for many decades, could cause asset bubbles.
This happens when an asset’s price rises quickly, however the increase is not always indicative of its underlying value.
Himes stated that the low interest rates have also led to “remarkably strange financial behavior”, such as the growth of “near-cult” special purpose acquisition businesses or “dumping money into”. meme stocksCompanies that are “surprisingly popular” on social media have seen share prices rise and they have been a source of surprise.
Himes suggested it belonged to the Federal Reserve’s responsibility to manage low interest rate risk.
He said: “I fought my entire career to make sure monetary policy does not get influenced by the tender mercies of political people in the Congress but I think … we’re taking a turn there and hopefully that will begin over time to maybe take some of the risk out of what are pretty clearly some asset bubbles out there.”
After the economic downturn, the Fed began to normalize its policy. the coronavirus pandemic. The central bank had earlier said in November that the tapering of bond purchases would begin “later this year” but also acknowledged that inflation had been faster and more persistent than predicted by them.
Additionally, the Fed did not vote to increase interest rates above their anchor point of zero. They warned that rate rises could be imminent.