The escalating trade war seems to be sharply depressing the Wicksellian equilibrium interest rate. Here are some recent headlines, from Bloomberg:
The 5-year bond yield is down to 2.10%, a pretty clear indication that significantly lower interest rates lie ahead. Trump may or may not have been right that lower interest rates were called for in 2018 (I doubt it, as NGDP growth has been quite strong), but if the trade war keeps escalating then he will almost certainly be right about the need for lower rates in 2019.
Continue Reading… https://www.themoneyillusion.com/monetary-policy-is-becoming-too-tight/