<p>I’ll give one technical and one economic reason:  first, if you believe in the zero bound for interest rates (bank of England will not set a negative short rate) then mathematically, if the current bank rate is close to zero (as it was post the 2008 crisis), then the distribution of rates 2-3 years forward is going to be biased upwards.  Secondly, what happened economically during this period was that central banks saw that even with rates close to zero, inflation was not being stoked and in fact deflation was more of a worry.  Hence the central banks never were able to raise rates as much as the forward curves expected.</p>

CC BY-SA 4.0
2022-04-07T11:31:32.310Z
I agree with the "technical" point. Your other point is about "inflation was not being stoked" - so presumably the market consistently thought "look out for inflation... here it comes any minute now..." and they were always wrong. Why were they wrong on that?
Mick
CC BY-SA 4.0
2022-04-07T21:06:59.783Z
Well this is a very wide subject but to summarize I’d say that long term trends such as automation, globalization and demographics acted as disinflationary forces during this period. But there is a lot of literature on that.
dm63
CC BY-SA 4.0
2022-04-07T10:36:17.880Z
2022-04-07T10:36:17.880Z
dm63
<p>I have seen this graph (or similar) in several places. It shows how the market has consistently and incorrectly predicted interest rates will rise back to normal levels. With the benefit of hindsight, has anyone produced a reasonable explanation as to why the market  got it so wrong?</p>
<p><a href="https://i.sstatic.net/9cnsr.jpg" rel="nofollow noreferrer"><img src="https://i.sstatic.net/9cnsr.jpg" alt="enter image description here" /></a></p>

<interest-rate>
Why has the market got it so consistently wrong about interest rate rises
Mick
# Why has the market got it so consistently wrong about interest rate rises

(Asked by: username_0 on 2022-04-07)

I have seen this graph (or similar) in several places. It shows how the market has consistently and incorrectly predicted interest rates will rise back to normal levels. With the benefit of hindsight, has anyone produced a reasonable explanation as to why the market got it so wrong?

[![enter image description here](https://i.sstatic.net/9cnsr.jpg)](https://i.sstatic.net/9cnsr.jpg)

**Tags:** interest-rate

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## 1 answers

### Answer by username_1 on 2022-04-07. Score: 1

I’ll give one technical and one economic reason: first, if you believe in the zero bound for interest rates (bank of England will not set a negative short rate) then mathematically, if the current bank rate is close to zero (as it was post the 2008 crisis), then the distribution of rates 2-3 years forward is going to be biased upwards. Secondly, what happened economically during this period was that central banks saw that even with rates close to zero, inflation was not being stoked and in fact deflation was more of a worry. Hence the central banks never were able to raise rates as much as the forward curves expected.

> **Comments:**
> **username_0**: I agree with the "technical" point. Your other point is about "inflation was not being stoked" - so presumably the market consistently thought "look out for inflation... here it comes any minute now..." and they were always wrong. Why were they wrong on that?  
> **username_1**: Well this is a very wide subject but to summarize I’d say that long term trends such as automation, globalization and demographics acted as disinflationary forces during this period. But there is a lot of literature on that.  

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