Odd Lots: Why the Price of Money Surged in 6 Years (Podcast)

The article, featuring Bloomberg economists Jamie Rush and Tom Orlik, examines the surge in interest rates since 2019 and the elevated neutral rate of interest (r*), suggesting a sustained departure from ZIRP and a shallower rate-cutting cycle. Key drivers identified for this upward shift in r* include deglobalization, demographic changes, and significant investment in datacenters, fundamentally altering the long-term monetary policy outlook for investors.

Analysis

Odd Lots: Why the Price of Money Surged in the Last 6 Years Odd Lots Why the Price of Money Surged in the Last 6 Years What changed between 2019 and 2025? Why are interest rates so much higher? Why does it seem virtually unfathomable that the Fed will return to ZIRP anytime soon? Why do investors expect this rate cut cycle to be so shallow? The answer, theoretically, is that the neutral rate of interest has gone up. But what is the neutral rate of interest, and why has it moved? On this episode, we speak with Jamie Rush of Bloomberg Economics and Tom Orlik, the Chief Economist at Bloomberg Economics. They, along with Bloomberg's Stephanie Flanders, are the editors of a new book titled The Price of Money: A Guide to the Past, Present, and Future of the Natural Rate of Interest, in which they attempt to directly identify what the neutral rate of interest actually is. We discuss the big changes over the last several years, including deglobalization, demographics, and datacenters, that are pushing this number higher. Oct 09, 2025 The financial landscape has undergone a significant shift since 2019, marked by a surge in interest rates and an elevated neutral rate of interest (r), as highlighted by Bloomberg economists Jamie Rush and Tom Orlik in their new book, "The Price of Money." This fundamental change suggests that a return to zero interest rate policy (ZIRP) is unlikely, and any future rate-cutting cycles will be notably shallow. Key structural forces identified as driving this increase in r include deglobalization, demographic shifts, and substantial capital expenditure in datacenters. These macroeconomic factors are fundamentally altering the equilibrium interest rate, indicating a persistent increase in the cost of capital. This implies a departure from the low-rate environment that characterized monetary policy for decades. The sustained higher r has significant implications for investment strategies, capital allocation, and the valuation of assets across various sectors.

Key Decisions for Investors

• Re-evaluate portfolio asset allocation, specifically assessing exposure to long-duration assets and growth equities, given a sustained higher neutral rate of interest.
• Monitor investment opportunities and risks in sectors directly influenced by the identified structural drivers, such as technology infrastructure (datacenters) and industries affected by deglobalization trends.
• Adjust monetary policy expectations to account for a shallower rate-cutting cycle and a reduced likelihood of returning to a zero interest rate policy (ZIRP) environment.