Low Interest Rates
Low interest rates are generally interest rates that are lower than historical norms. They tend to increase consumption, increase equity asset valuations and delay business failures.
- There is no defined level at which rates are low - depend on your timeline of analysis and historical rates
Impacts of Low Interest Rates
- Low interest rates pull consumption forward - they encourage consumers to spend
- Low interest rates delay business failures - they let companies that otherwise would fail live off of credit
- Low interest rates increase equity valuations by lowering the discount rate used to value them
- Low interest rates force investors to take more risk in order to generate the same yield as with higher rates