ISMS 33: Fed Success! High LT Rates & Recession Coming

<h2>Fed Success! High LT Rates &amp; Recession Coming</h2><ul><li>World yield curve inversion is falling because of rising LT rates</li><li>Rising LT rates are reducing yield curve inversion fastest in DM Americas and DM Europe</li><li>Rates are high across EMs, crushing in FMs, and low in EM Asia</li><li>France and Germany ST rates rising; DM countries have past peak yield curve inversion due to rising LT rates</li><li>Rates are low in China, which, together with India, never inverted</li></ul><br/><h3><strong>Rates returning to normal?</strong></h3><p><br></p><h3><strong>Irving Fisher (1867 –1947) – One of the earliest American neoclassical economists</strong></h3><ul><li>Described as "the greatest economist the United States has ever produced"</li><li>His reputation during his lifetime was irreparably harmed by his public statement, just nine days before the Wall Street Crash of 1929, that the stock market had reached "a permanently high plateau"</li><li>His 1930 treatise, The Theory of Interest, summed up a lifetime's research into capital, capital budgeting, credit markets, and the factors (including inflation) that determine interest rates</li><li>Some core concepts</li><li>Time Preference – The idea that people generally prefer to have goods and services sooner rather than later</li><li>Real Interest Rate – The real interest rate adjusts for the effects of inflation, allowing for a more accurate evaluation of the purchasing power of money over time</li><li>Fisher Equation – Relates nominal interest rates to real interest rates and inflation</li><li>Expressed as: Nominal Interest Rate = Real Interest Rate + Inflation Rate</li><li>The Fisher Effect - Suggests that nominal interest rates adjust in response to expected changes in inflation</li><li>In other words, if people anticipate higher inflation, nominal interest rates will rise to compensate</li></ul><br/><h4><br></h4><h4><br></h4><h3><strong>Jeremy Siegel (born 1945) Professor of finance at the Wharton School of the University of Penn.</strong></h3><ul>