Higher Interest Rates May Be the New Normal

• Higher interest rates are the 'new normal' due to a fundamental shift from a global 'savings glut' to a 'dearth of saving' and increased investment demand.
• Key drivers of this shift include retiring baby boomers, reduced US Treasury purchases by China and petrostates, surging defense spending, and massive AI infrastructure investments.
• The upcoming Fed rate hike, expected by markets, will increase debt servicing costs for governments, businesses, and households, and could lead to political pressure on the Fed Chair from President Trump.

Chief Economist Tom Orlik argues that higher interest rates are the 'new normal,' driven by structural shifts like demographic changes, reduced foreign investment in US debt, increased defense spending, and AI investments. He anticipates a Fed rate hike next week, which will increase borrowing costs and likely trigger political backlash from President Trump.