Unless you’re five years old, don’t wait for interest rates to fall

The Federal Reserve Bank sets interest rates for the USA, and they in turn influence interest rates over most of the world. This has been going on for 110 years, following an imprecise cycle of satisfaction and cruising, followed by overshooting and confusion. We are currently in the state of confusion, having overshot reductions to zero percent. This confusion is remarkable for one simple reason: never has the Fed been clearer about where interest rates are heading, or why.

All anyone had to do was watch Chairman Powell’s news conference on the 2nd of November, after the announcement of a further rate hike. Anyone who did now knows far more than the hottest Wall Street talking heads, who apparently did not bother to watch. They prefer to guess, pontificate and accuse.

Powell made it as clear as any native speaker of English could. He said the Fed had not overreacted in either speed or rate increases, and that interest rates were still too low. When interest rates are too low, he said, the Fed had no room to maneuver if it needed to lower rates. So rates must rise to a more historically normal level, from which they can go either up or down, incrementally managing the economy.

What is that level? Powell said interest rates needed to reflect a real return. That means they have to…