Edward Conard

Top Ten New York Times Bestselling Author

  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

AI Summary. The rise in interest rates reflects higher real interest rates rather than inflation expectations, since breakeven rates—the gap between yields on ordinary bonds and inflation-indexed bonds—indicate markets expect inflation to stay under control. Real rates well above 2%, up from below 1% before the pandemic, may prove transitory.

Paul Krugman Krugman Wonks Out
Date Posted:

.@paulkrugman argues that the sharp rise in real interest rates likely represents a market overreaction, but he notes, “That’s what I’d like to believe, so maybe you shouldn’t trust me here.”

Are higher interest rates driven by real rates rather than inflation expectations?

Core argument: Real interest rates have risen well above 2%, up from yields usually below 1% before the pandemic, accounting for the rate spike rather than inflation fears.

What’s causing this interest rate spike? You might be tempted to see rising rates as a sign that investors are worried about inflation. But that’s not the story. We can infer market expectations of inflation from breakeven rates, the spread between interest rates on ordinary bonds and on bonds indexed for changes in consumer prices; these rates show that the market believes that inflation is under control. What we’re seeing instead is a sharp rise in real interest rates — interest rates minus expected inflation. At this point, real interest rates are well above 2%, up from yields usually below 1% before the pandemic. And if these higher rates are the new normal, they have huge and troubling implications. My instinct is to say that the bond market is overreacting to recent data and that high interest rates, like high inflation, will be transitory.

Takeaways by Macro Roundup® AI

  1. Real interest rates have risen well above 2%, up from yields usually below 1% before the pandemic, accounting for the rate spike rather than inflation fears.
  2. Breakeven rates, the spread between yields on ordinary bonds and bonds indexed to consumer prices, indicate that markets believe inflation is under control.
  3. Krugman's instinct is that the bond market is overreacting to recent data and that high interest rates, like high inflation, will prove transitory, while higher rates as the new normal would carry troubling implications.

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