Are interest rates going to surprise us all by spiking up soon?

A new study by a scholar from Harvard University visiting the Bank of England provides data from the 1300s up to the present on interest rate trends, showing that the world’s rates are in a downturn but could spike up quickly and suddenly. People often talk about rates being low in the US the past twenty years. But Schmelzing, the scholar, showed using data going back 700 years that the current low rate trend is actually 200 years long. 

Schmelzing calculated the average real interest rate over the last 700 year period as nearly 5% for real interest rates—that subtract inflation rates. He showed that we are currently in a low period with rates averaging only 2.6% over the last 200 years. The current period of low rates starting in the 1980s is the period having the second lowest rates over the 700 years he tracked. So while it’s true that interest rates are currently at record lows, the low trend has actually been lasting longer than most of us realize.

But the data show that there have been nine periods in total where rates followed a declining trend only to suddenly rise. What is worrying is that he shows that the history of the data reveals that within two years of hitting their lowest points, rates have gained rapidly and without much warning.  So with rates possibly set to rise very quickly and suddenly, people should be careful about getting into situations where they borrow money using flexible interest rate deals.

https://www.bloomberg.com/news/articles/2017-11-12/trump-showing-he-can-be-played-former-intelligence-chiefs-say

http://news.morningstar.com/all/market-watch/TDJNMW20171110488/update-7-centuries-of-interest-rates-theres-a-warning-for-investors-in-this-chart.aspx

http://www.zerohedge.com/news/2017-11-07/bank-england-700-years-data-suggests-reversal-rates-will-be-rapid