Macroeconomics In Current Life: Falling Interest Rates In America

Macro-economics in Current Life
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Falling interest rates in America
An article done by Neil Irwin, a senior economist correspondent for the Upshot on 4th July 2019 indicated that the interest rates in America are moving downwards (Irwin, 2019).Also, the economic orthodoxy is falling with the drastic fall of interest rates. According to the author, investors are more susceptible to lower growth and inflation relative to the past. The American borrowing costs are pitching an indicator that it is off base. There has been a drastic fall in the recent 10 years as America is only yielding 1.95% down from 3.2% as recorded on November 2018. To this end, global investors have embarked on flinging money in all the creditworthy entities that borrow. Additionally, the corporate bonds, home mortgages and global countries debt has been deteriorating. This serves as a threat to homeowners that are seeking for alternatives to refinance their mortgage and also to chief financier officer intending to roll over some company’s bonds. The falling interest rates pose a threat to future rapid global economic growth. Lower long term rates are an implication of inflation and lower growth that investors should expect. The diagram below depicts a 10year Treasury bond yield that indicates that plunging longer-term rates is a threat to the global economy
According to Irwin (2019) the falling interest rates issue can be traced from the C.B.O legislation projection. The projection assumes that government higher borrowing creates higher deficits that trigger the rise of interest rates thus the private sectors crowds up investments. Though the logics are not holding up now. For instance, in 2018 the C.B.O modeled tax cuts and the spending increased projecting to have a higher interest rate of about 3.7% in 2019 treasury bonds. However, the projection was not actualized as the Treasury bond only recorded 1.95% in 2019. The other scenario occurred in 2015 where the budget deficit was about 2.4% of G.D.P. notably; the number was to increase to 4.2% in 2019. However, this backfired as the 10th year bond in 2019 is below 2015 average level which was at 2.14%.The movements in the bonds market are a suggestion that there is a probability of low inflation despite recording low rates of unemployment. Prices of an inflation-protected bond relative to regular bonds are an implication that the consumer prices may only increase with 1.66% annually over the coming decade.
Global factors are deemed to be the leading cause of disconnect in the US economy. The US economy has been more superior as opposed to its counterparts such as Japan and Europe but the slow global growth has contributed to the US limits on increasing the rates factoring the inflation that can emerge. In essence, when the US rates are extremely high compared with other strategic economies the value of the dollar currency strengthens on the global currency economies. However, this weakens the US export business. Shen (2019) argues that the strength of the US dollars sends ripple effects to emerging economies where various organizations borrow in form of dollars, an indicator that when the US increases its rates it is prone to slow the entire g...