Interest Rates 'Must' Be Going Up Soon, Right?
Responding on a thread about multifamily (5+ unit) financing options this morning and wanted to share it here as well. The conversation was about different fixed rate periods and loan terms:
One thing to consider is that while we're almost hard wired to believe that rates must be going up at some point, we could actually be turning Japanese with the Fed caught in a liquidity trap that keeps rates chained near the zero lower bound for an extended period. Japan's Ushinawareta Junen (Lost Decade) is getting to be two and a half and some observers believe the US has been heading the same direction since the turn of the century.
the dot com implosion in 2000 easing ahead of the Y2K 'bug' every time the Fed has tried to tighten it has caused a recession and they're forced to backtrack. But if you are like me you've grown up in a time when inflation was the big concern. I (and maybe you too) have a hair trigger sensitivity to anything that smells like inflation but now the fight seems to be against deflation.
Historically this makes sense as well because as Reinhart and Rogoff pointed out in This Time Is Different, recovering from a debt bubble involves lower spending as debt is paid down and savings built up. The real danger is that it becomes a spiral of less spending that reduces the economy which leads to more savings which further reduces spending, rinse and repeat.
Net net, while my most innate instincts are to lock up the longest fixed rate debt possible the urgency may be more about my biases then the economic reality we confront. If the Fed is trapped at the ZLB investors who went with the lower rate short fixed term financing may do better.