Surprising Economic Fact of the Day

Michael Mandel

Today the 10 year Treasury rate hit 5.23%, exactly where it was the day after George Bush's inauguration in January 2001. That is, the federal budget went from $5.6 trillion in surplus (measured on a 10-year time horizon) to $800 billion in deficit, without any noticeable impact on long rates.

Now, be honest. Suppose in 2001 I would have told you these true facts about the next five years:
--the shift in the federal budget from surplus to deficit.
--the very sharp rise in oil prices and the doubling of overall commodity prices
--the strong growth of the global economy (4.0% average from 2000-2005, compared to 3.9% from 1995-2000)
--today's low unemployment rate (4.6%, compared to 4.2% in January 2001)

If I had told you these facts in January 2001, would you have predicted that long-term interest rates would be no higher in June 2006?