Why Lower for Longer Means Riskier than Ever
The lower for longer premise on which the Fed’s new policy depends may or may not bring the recovery for which we all hope so devoutly, but lower-for-longer rates in the real world for sure mean higher-than-ever systemic risks. One of the most important of these is the economic inequality certain to get dramatically worse due to the combined impact of COVID and ultra-low rates.  Given that inequality is a demonstrable and perhaps even driving cause of financial crises, this is more than disconcerting.  However, even if one discounts the inequality/crisis nexus, plenty of more accepted accelerants of systemic risk will flare still higher thanks to lower for longer.  This is not just due to the asset bubbles rightly cited in today’s Wall Street Journal editorial.  Another proven, if less recognized, systemic-risk builder is the fact that lower-for-longer rates also turns regulated banking and insurance companies into losers for longer.