Interest rates, the price people are willing to pay for money, reflect every human motivation imaginable. That the real rate of return varies 2% - 3% around a mean over time is not at all out of line. Do you take issue with the market rate being a reflection of the sum of the real interest rate (generating a real return) and an inflation premium as a general rule and over time? This is the fundamental point and consistent with my earlier posts. If you do, please elucidate.
Let me add from personal experience. I watch mortgage rates move with the 10-year Treasury bond daily. The spread between the 2 varies all the time as a function of what bond traders think the Fed will do, retail sales, employment and on and on. If you're looking for perfect correlation, you will never find it.
Your "fundamental point" now is not consistent with your earlier posts. You have altered your argument
from:Your new "fundamental point" real rate of return varies 2% - 3% around a mean over time is a much more general statement.
[over months, medium term] interest rates track exceedingly well [or nearly perfectly] to actual inflation alone. The 2 components, the "risk-free" rate and an "inflation premium" sum to the current rate.to:
That the real rate of return varies 2% - 3% around a mean over time is not at all out of line. Do you take issue with the market rate being a reflection of the sum of the real interest rate (generating a real return) and an inflation premium as a general rule and over time?
However, again from the graph, over time now (say 10-years for example from '80 to '90) the real risk free interest rate varied:
9%-3% for the T-Bond; and,Considerably outside 2-3% range you feel is 'in line' i.e. outside the "medium term" of "months" looking at 10 years the variation of real risk free interest is 3 fold greater than what you feel is in line.
7%-0% for the T-Bill;
Further, another component (among others) omitted from your sum is duration. Obviously, lenders want a greater interest rate of return, after inflation, after risk, for longer terms - a 'duration premium' if you will. That's why we have an rate "curve" (slope) of increasing rates from 0 to 30 years. Right?