Interest rates matter deeply, even if you’ve never taken an economics course. They influence infrastructure investment, company financing, housing markets, and the cost of capital overall. A recent article from the Mises Institute argues that interest rates — especially long-term ones — may stay elevated for many years rather than quickly returning to the ultra-low levels seen before 2021. (Mises Institute)
This post breaks down those ideas for a technical audience with no economics background, using analogies familiar to engineers.
What Are Interest Rates — And Why They Matter
An interest rate is essentially the price of borrowing money over time. If you borrow ₹100 now and repay ₹110 a year later, that extra ₹10 reflects the interest rate — the cost of using capital instead of spending or investing it now.
Interest rates are more than loan costs; they act as signals in the economy — coordinating how much people save, how companies invest, and what projects get built. Engineers might think of them like boundary conditions in a system: changing these conditions alters the feasible solution space for all decision-makers.
For example:
- Low interest rates → borrowing is cheap → more investment and growth.
- High interest rates → borrowing is expensive → fewer long-term projects are profitable.
The Mises Institute article emphasizes that interest rates function as a core price in capitalism, transmitting resources across time and enabling entrepreneurs to allocate capital efficiently. (Mises Institute)
A Quick History: From High Inflation to Falling Rates
📉 The 40-Year Decline (1981–2021)
From the 1980s through about 2021, long-term interest rates — such as yields on 10-year government bonds — generally trended downward. This reflected:
- Falling inflation
- Greater financial integration
- Higher savings and global capital flows
For example, research shows that real interest rates across advanced economies declined significantly over these decades, with long-term real rates approaching historically low levels by the 2010s. (Bank for International Settlements)
This secular decline was not just a U.S. phenomenon; it appeared broadly across advanced economies. (Bank for International Settlements)
🌍 Structural Drivers of the Decline
Long-term interest rate trends can be shaped by factors such as:
- Demographics: Older populations may save less, reducing available loanable funds.
- Global capital flows: Excess savings in high-saving economies can drive down rates globally. (Wikipedia)
- Monetary policy: Central bank actions and expectations influence long-term yields. (Bank for International Settlements)
The Core Argument: “Longer, Higher for Longer”
The Mises Institute article argues that this long-term decline may be reversing — meaning interest rates could remain higher over a longer period than many investors and policymakers expect. (Mises Institute)
Two Key Points from the Article
- Interest rates have become a managed price.
The article argues that central bank policies today set interest rates in a way that obscures true market feedback — akin to fixing a price in a control system and losing error signals. (Mises Institute) - The long-term trend may be shifting.
After decades of falling rates, structural changes — including high government debt, changing demographics, and monetary policy regimes — may push long-term rates upward. (Mises Institute)
The author suggests that while short-run fluctuations can occur, the long-run baseline for interest rates may drift higher — hence “longer, higher for longer.” (Mises Institute)
What Happens If Rates Stay High?
📌 Mortgages
If you locked in a low mortgage rate — for example, around 2% during the COVID era — keeping that rate is beneficial because future rates may be higher. (Mises Institute)
📌 Bonds
Long-term bonds suffer when interest rates rise — because bond prices fall as yields go up. This means poor performance for long-duration fixed income. (Mises Institute)
📌 Stocks
Stock returns can be lower if capital is more expensive and economic growth slows. (Mises Institute)
📌 Commodities
Commodities may fare relatively better, especially physical ones like energy or metals, which are less sensitive to rate movements. Some investors see gold’s run-up since 2020 as a hint of this shift. (Mises Institute)
Central Banks: Controllers or Signal Providers?
The article is critical of how central banks like the Federal Reserve manage interest rates. From an engineering perspective, it likens current policy regimes to overriding a feedback control system:
- Instead of letting market forces coordinate savings and investment, central banks set rates directly.
- Like overriding feedback in a control loop, this can distort the information the system needs to balance itself. (Mises Institute)
This reflects a broader philosophical grounding in the Austrian School of economics, which emphasizes market-determined prices. (Mises Institute)
Final Takeaway
Here’s the bottom line:
The long era of declining interest rates — which lasted roughly from the early 1980s to around 2021 — may be ending. Instead, structural forces could keep long-term rates elevated for a long time. (Mises Institute)
For engineers and technically minded readers, this is akin to a shift in long-term system parameters. When these baseline conditions change, the constraints and opportunities for investment and growth change too.
Understanding this context prepares you not just for economic theory, but for real decisions about projects, financing, and long-term planning.
References
Primary Source
- Mark Thornton, “Longer, Higher for Longer,” Mises Institute, December 18, 2025 — argues higher interest rates may persist due to demographics, debt, and policy regimes. (Mises Institute)
Supporting Research on Interest Rates
- BIS Working Paper: Shows long-term declines in interest rates driven by monetary policy decisions. (Bank for International Settlements)
- BIS Overview: Discusses long-term declines in nominal interest rates across advanced economies. (Bank for International Settlements)
- Federal Reserve Minneapolis: Finds long-term real interest rate declines since the 1980s. (minneapolisfed.org)
- Global Saving Glut: Large global savings can lower real long-term interest rates. (Wikipedia)
