Entirely possible that we’ll see low interest rates forever, asset manager says

The Marriner S. Eccles Federal Reserve building stands in Washington, D.C., U.S., on Tuesday, Aug. 18, 2020.

Erin Scott | Bloomberg via Getty Images

Interest rates could remain at their record lows “forever,” according to one asset manager, despite a recent rush to normalize policy by many of the world’s central banks.

GAM Investments’ Julian Howard told CNBC’s “Squawk Box Europe” last week that he believed it was “entirely consistent historically to talk about low rates forever.”

Howard is the lead investment director of multi-asset solutions at GAM, which has 103 billion Swiss francs ($112 billion) in assets under management.

He cited research by economic historian Paul Schmelzing, who was a visiting scholar at the Bank of England when the paper was published in 2020.

The research looked at interest rates globally dating back to the 14th century, identifying a downward trend, with Schmelzing predicting that “real rates could soon enter permanently negative territory.”

Howard said the lower rates that we had seen in recent years were, therefore, “actually a return to a very, very long-term trend of yields falling over an extended period of time.”

He pointed to the economic damage caused by the coronavirus pandemic and climate change, which is set to have a “very, very negative effect on interest rates,” he added.

“There’s no context in which a central bank will be able to normalize, sort of 1990s style normalize, interest rates when there’s going to be absolutely no growth,” Howard explained.

Howard expected that the Federal Reserve would probably only start raising interest rates in the second half of 2022.

The risks of low interest rates

Rep. Jim Himes, D-Conn., told CNBC Tuesday that low interest rates and the “free money” that we had seen for many years, risked creating asset bubbles.

This is when the price of an investment rises rapidly, but the jump not necessarily reflecting the asset’s underlying value.

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