Higher Interest Rates Not Just for Longer, but Maybe Forever

On Wednesday, Federal Reserve officials surprised markets by signalling interest rates won’t fall as much as previously planned.

The tweak might be more important than it looks. In their projections and commentary, some officials hint that rates might be higher not just for longer, but forever. In more technical terms, the so-called neutral rate, which keeps inflation and unemployment stable over time, has risen.

This matters to any investor, business or household whose plans depend on interest rates over a decade or longer. It could explain why long-term Treasury yields have risen sharply in the past few months, and why stocks are struggling.

The neutral rate isn’t literally forever, but that captures the general idea. In the long run neutral is a function of very slow moving forces: demographics, the global demand for capital, the level of government debt and investors’ assessments of inflation and growth risks.

The neutral rate can’t be observed, only inferred by how the economy responds to particular levels of interest rates. If current rates aren’t slowing demand or inflation, then neutral must be higher and monetary policy isn’t tight.

Indeed, on Wednesday, Fed Chair Jerome Powell allowed that one reason the economy and labor market remain resilient despite rates between 5.25% and 5.5% is that neutral has risen, though he added: “We don’t know that.”

Before the 2007-09 recession and financial crisis, economists thought the neutral rate was around 4% to 4.5%. After subtracting 2% inflation, the real neutral rate was 2% to 2.5%. In the subsequent decade, the Fed kept interest rates near zero, yet growth remained sluggish and inflation below 2%. Estimates of neutral began to drop. Fed officials’ median estimate of the longer-run fed-funds rate—their proxy for neutral—fell from 4% in 2013 to 2.5% in 2019, or 0.5% in real terms.

As of Wednesday, the median estimate was still 2.5%. But five of 18 Fed officials put it at 3% or higher, compared with just three officials in June and two last December.

In 2026, officials project the economy growing at its long-term rate of 1.8%, unemployment at its long-run natural level of 4%, and inflation at its 2% target. Those conditions would normally be consistent with interest rates at neutral. As it happens, officials think the fed-funds rate will end the year at 2.9%—another hint they think neutral has risen.

There are plenty of reasons for a higher neutral. After the global financial crisis, businesses, households and banks were paying down debt instead of borrowing, reducing demand for savings while holding down growth and inflation. As the crisis faded, so did the downward pressure on interest rates.

Another is government red ink: Federal debt held by the public now stands at 95% of gross domestic product, up from 80% at the start of 2020, and federal deficits are now 6% of GDP and projected to keep rising, from under 5% before the pandemic. To get investors to hold so much more debt probably requires paying them more. The Fed bought bonds after the financial crisis and again during the pandemic to push down long-term interest rates. It is now shedding those bond holdings.

Inflation should not, by itself, affect the real neutral rate. However, before the pandemic the Fed’s principal concern was that inflation would persist below 2%, a situation that makes it difficult to stimulate spending and can lead to deflation, and that is why it kept rates near zero from 2008 to 2015. In the future it will worry more that inflation persists above 2%, and err on the side of higher rates with little appetite for returning to zero.

Other factors are still pressing down on neutral, such as an aging world population, which reduces demand for homes and capital goods to equip workers.

So neutral has probably risen since 2019, but not to its pre-2008 level. Indeed, futures markets peg rates a decade from now at around 3.75%.

Of course, this is all just a forecast. If inflation comes down painlessly in the next year, if growth slows abruptly, or if Treasury yields drop, then estimates of neutral will also come down. For now, the evidence suggests the public should get used to higher rates as far as the eye can see.

The number of U.S. billionaires in the world reached 870 in mid-January, outpacing the number in China for the first time in 10 years, according to a snapshot of the wealthiest in the world by the Hurun Report.

The U.S. gained 70 billionaires since last year, powered by a rising stock market, a strong dollar, and the insatiable appetite for all things AI, according to the 14th annual Hurun Global Rich List . China gained nine billionaires overall for a total of 823. Hurun is a China-based research, media, and investment group.

“It’s been a good year for AI, money managers, entertainment, and crypto,” Rupert Hoogewerf, chairman and chief researcher of the Hurun Report, said in a news release. “It’s been a tough year for luxury, telecommunications, and real estate in China.”

Overall, the Hurun list—which reflects a snapshot of global wealth based on calculations made Jan. 15—counted 3,442 billionaires in the world, up 5%, or 163, from a year ago. Their total wealth rose 13% to just under $17 trillion.

In November, New York research firm Altrata reported that the billionaire population rose 4% in 2023 to 3,323 individuals and their wealth rose 9% to $12.1 trillion.

Elon Musk, CEO of electric-car maker Tesla and right-hand advisor to President Donald Trump, topped the list for the fourth time in five years, with recorded wealth of $420 billion as of mid-January as Tesla stock soared in the aftermath of the U.S. election, according to Hurun’s calculations.

The firm noted that Musk’s wealth has since nosedived about $100 billion, falling along with shares of Tesla although the EV car maker is benefiting on Thursday from Trump’s 25% tariff on cars made outside the U.S.

According to the Bloomberg Billionaires Index, Musk’s wealth stood at about $336 billion as of the market’s close on Wednesday, although measuring his exact wealth —including stakes in his privately held companies and the undiscounted value of his Tesla shares—is difficult to precisely determine.

The overall list this year contained 387 new billionaires, while 177 dropped off the list—more than 80 of which were from China, Hurun said. “China’s economy is continuing to restructure, with the drop-offs coming from a weeding out of healthcare and new energy and traditional manufacturing, as well as real estate,” Hoogewerf said in the release.

Among those who wealth sank was Colin Huang, the founder of PDD Holdings —the parent company of e-commerce platforms Temu and Pinduoduo—who lost $17 billion.

Also, Zhong Shanshan, the founder and chair of the Nongfu Spring beverage company and the majority owner of Beijing Wantai Biological Pharmacy Enterprise , lost $8 billion from “intensifying competition” in the market for bottled water. The loss knocked Zhong from his top rank in China, which is now held by Zhang Yiming founder of Tik-Tok owner Bytedance. Zhang is ranked No. 22 overall.

Hurun’s top 10 billionaires is a familiar group of largely U.S. individuals including Jeff Bezos, Mark Zuckerberg, and Larry Ellison. The list has France’s LVMH CEO Bernard Arnault in seventh place, three notches down from his fourth ranked spot on the Bloomberg list, reflecting a slump in luxury products last year.

Nvidia CEO Jensen Huang is ranked No. 11 on Hurun’s list as his wealth nearly tripled to $128 billion through Jan. 15. Other AI billionaires found lower down on the list include Liang Wenfeng, 40, founder and CEO of DeepSeek, with wealth of $4.5 billion and Sam Altman, CEO of OpenAI, with $1.8 billion.

Also making the list were musicians Jay-Z ($2.7 billion), Rihanna ($1.7 billion), Taylor Swift ($1.6 billion), and Paul McCartney ($1 billion). Sports stars included Michael Jordan ($3.3 billion), Tiger Woods ($1.7 billion), Floyd Mayweather ($1.3 billion), and LeBron James ($1.3 billion).

Wealth continues to surge across the globe, but Hoogewerf noted those amassing it aren’t overly generous.

“We only managed to find three individuals in the past year who donated more than $1 billion,” he said. Warren Buffet gave $5.3 billion, mainly to the Bill and Melinda Gates Foundation, while Michael Bloomberg —ranked No. 19 with wealth of $92 billion—gave $3.7 billion to various causes. Netflix founder Reed Hastings, ranked No. 474 with wealth of $6.2 billion, donated $1.1 billion.

Higher Interest Rates Not Just for Longer, but Maybe Forever

Rate projections suggest many Fed officials see a rising ‘neutral rate’

The U.S. now has more billionaires than China for the first time in a decade, driven by AI and a booming stock market.