I’ve been asking traders what causes low-interest rates. The consensus is that the Federal Reserve is what causes low-interest rates. That is not entirely true and believing that could be harmful to your trading account.
Some 250 years ago, David Hume was the very first economist to explain what causes low-interest rates.
The three things that cause low-interest rates are:
1. Small demand for borrowing
2. Great riches to supply that demand
3. Small profits arising from commerce
In other words, the most important things that cause low-interest rates are factors going on in the economy. It’s the weak economy that is most responsible for why we have low-interest rates. While this may seem like common sense to some of you, I was surprised by how many traders were more focused on monetary policy than on macroeconomics.