Higher Interest Rates Not Just for Longer, but Maybe Forever
Rate projections suggest many Fed officials see a rising ‘neutral rate’
3 min
On Wednesday, Federal Reserve officials surprised markets by signalling interest rates won’t fall as much as previously planned.
The tweak might be more important than it looks. In their projections and commentary, some officials hint that rates might be higher not just for longer, but forever. In more technical terms, the so-called neutral rate, which keeps inflation and unemployment stable over time, has risen.
This matters to any investor, business or household whose plans depend on interest rates over a decade or longer. It could explain why long-term Treasury yields have risen sharply in the past few months, and why stocks are struggling.
The neutral rate isn’t literally forever, but that captures the general idea. In the long run neutral is a function of very slow moving forces: demographics, the global demand for capital, the level of government debt and investors’ assessments of inflation and growth risks.
The neutral rate can’t be observed, only inferred by how the economy responds to particular levels of interest rates. If current rates aren’t slowing demand or inflation, then neutral must be higher and monetary policy isn’t tight.
Indeed, on Wednesday, Fed Chair Jerome Powell allowed that one reason the economy and labor market remain resilient despite rates between 5.25% and 5.5% is that neutral has risen, though he added: “We don’t know that.”
Before the 2007-09 recession and financial crisis, economists thought the neutral rate was around 4% to 4.5%. After subtracting 2% inflation, the real neutral rate was 2% to 2.5%. In the subsequent decade, the Fed kept interest rates near zero, yet growth remained sluggish and inflation below 2%. Estimates of neutral began to drop. Fed officials’ median estimate of the longer-run fed-funds rate—their proxy for neutral—fell from 4% in 2013 to 2.5% in 2019, or 0.5% in real terms.
As of Wednesday, the median estimate was still 2.5%. But five of 18 Fed officials put it at 3% or higher, compared with just three officials in June and two last December.
In 2026, officials project the economy growing at its long-term rate of 1.8%, unemployment at its long-run natural level of 4%, and inflation at its 2% target. Those conditions would normally be consistent with interest rates at neutral. As it happens, officials think the fed-funds rate will end the year at 2.9%—another hint they think neutral has risen.
There are plenty of reasons for a higher neutral. After the global financial crisis, businesses, households and banks were paying down debt instead of borrowing, reducing demand for savings while holding down growth and inflation. As the crisis faded, so did the downward pressure on interest rates.
Another is government red ink: Federal debt held by the public now stands at 95% of gross domestic product, up from 80% at the start of 2020, and federal deficits are now 6% of GDP and projected to keep rising, from under 5% before the pandemic. To get investors to hold so much more debt probably requires paying them more. The Fed bought bonds after the financial crisis and again during the pandemic to push down long-term interest rates. It is now shedding those bondholdings.
Inflation should not, by itself, affect the real neutral rate. However, before the pandemic the Fed’s principal concern was that inflation would persist below 2%, a situation that makes it difficult to stimulate spending and can lead to deflation, and that is why it kept rates near zero from 2008 to 2015. In the future it will worry more that inflation persists above 2%, and err on the side of higher rates with little appetite for returning to zero.
Other factors are still pressing down on neutral, such as an aging world population, which reduces demand for homes and capital goods to equip workers.
So neutral has probably risen since 2019, but not to its pre-2008 level. Indeed, futures markets peg rates a decade from now at around 3.75%.
Of course, this is all just a forecast. If inflation comes down painlessly in the next year, if growth slows abruptly, or if Treasury yields drop, then estimates of neutral will also come down. For now, the evidence suggests the public should get used to higher rates as far as the eye can see.
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Gold miners are emerging as a compelling way to navigate market uncertainty, with analysts pointing to strong cash flows, attractive valuations and rising profit margins. As gold prices stabilize above US$4,000 an ounce, mining stocks could offer investors both downside protection and long-term upside.
3 min
Gold is one of the market’s go-to hedges in rocky times. Don’t forget that gold miners’ stocks are too.
The stock market’s gains in 2026 belie the rocky macroeconomic picture: elevated inflation, heightened geopolitical tensions, and jitters about the artificial-intelligence trade. That backdrop, in theory, should be the time for gold to shine. Instead, the price of the yellow metal has tumbled more than 5% so far, after last year’s blistering 65% rally. In part, the U.S. dollar’s recovery has stymied gold, which benefited from the greenback’s weakness in 2025.
Even with the precious metal’s recent weakness, gold mining stocks could be the best way to profit from this year’s uncertainty.
Gold miners “are a valuable hedge against macro risks that would likely be damaging for equities,” BCA Research’s Noah Weisberger and Rishabh Shah wrote this week.
Concerns about the Federal Reserve’s next moves to tackle inflation, the increasingly crowded AI trade, and steep valuations for tech stocks are just some of the drivers that could help gold’s price get on even footing— and lead to even bigger gains for miner stocks.
These stocks’ prices tend to outpace gold’s moves, because the companies have fixed operational costs. So when gold’s price rallies, their profit margins soar, and vice versa. For instance, the VanEck Gold Miners GDX +7.39% exchange-traded fund has fallen 11% this year as the metal has slumped.
Now, gold’s price just needs to stabilize to help miners’ stocks take off, and that seems to be happening. The precious metal has recently found support above the $4,000 level, and has stuck in a narrow range since the end of June. But its price rose ever so slightly in July, ending a four-month losing streak for the metal. Technical analysis also suggests that gold is due for a comeback.
Barron’s recently wrote that the pullbacks for both gold miners and the metal itself are overdone. Senior technical analyst Doug Busch noted that the VanEck ETF is on the “verge of a breakout” and has the potential to hit $11o in early 2027, up more than 40% from its current price.
Gold miners also have more than their role as a market hedge going for them. Their fundamentals are solid, too, says Chris Mancini, portfolio co-manager of the Gabelli Gold Fund.
“Precious metals miners are generating substantial amounts of free cash flow given profit margins of over $2,000 per ounce, and are returning this cash to shareholders through buybacks and dividends,” he said in an email.
“Buying the miners is a cheap way to get exposure to the price of gold,” he added. His fund owns Newmont NEM +6.71%, a Barron’s stock pick last year, and Agnico Eagle Mines as top holdings, as well as miners Northern Star Resources, Endeavour Mining, and Kinross Gold K+8.59%.
Miners are better businesses than they used to be, the BCA team added.
“Capex is more disciplined, margins are high and rising…and they are largely independent of the AI story,” Weisberger, BCA’s head of equities, and Shah, a senior analyst, wrote.
That last part is key. AI is disrupting the software industry and many other services and information-oriented businesses, and investors have piled into AI stocks. But ChatGPT, Claude, Grok, and other large-language models aren’t going to replace the need to mine for metals.
“Equity portfolios can benefit from exposure to quality that is uncorrelated to AI risk, and gold miners fit the bill,” the BCA team said.
They recommend that investors buy the VanEck Gold Miners ETF, which owns top miners such as Agnico, Barrick Mining ABX +7.24%, and Newmont.
An important bonus for big gold miners’ stocks is that their valuations are attractive after the gold’s pullback, too. The VanEck ETF is now trading at just a little more than nine times next year’s earnings estimates. That’s a big discount to its five-year average price-to-earnings ratio of 14, according to FactSet.
What’s more, the ETF is currently valued at a more than 50% discount to the S&P 500 SPX -0.17%, which is trading for about 19 times earnings estimates for 2027. Mining stocks have typically traded at just a 25% discount to the broader market over the past five years. So there is significant upside for the group if valuations move back toward normal levels.
One factor that complicates mining stocks as a market hedge, of course, is if stocks bounce back, which has been the case so far in August.
But both the market and economic outlooks remain cloudy, and investors remain nervous about the Fed’s next moves and AI stocks. Gold miners should do just fine, even if the anxious mood on Wall Street persists.
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