Are Bonds Gonna Party Like It’s 1999?

Do you remember the economy of the late 1990s? Or if you’re too young to remember it — I hope that’s true for at least some of my readers — what have you heard about it?

You probably remember it as a time of prosperity — low unemployment and rapid economic growth, combined with low inflation — marred by irrational exuberance in the stock market., anyone?

What you may not realize is how closely the economy of early 2024 resembles that of the late Clinton years. People might not be feeling the prosperity — or at least they say they aren’t feeling it, because there’s a huge gap between Americans’ positive assessment of their personal financial situation and their negative assessments of the economy. But by the numbers, things look pretty good. Notably, unemployment is actually a bit lower now than it was at the end of the roaring ’90s:


What about inflation? We did have a serious bout of inflation in 2021 and ’22, but it has come way down since then. True, the past few inflation reports have been disappointing, but for the most part, that probably reflects statistical noise. The Federal Reserve Bank of New York has a measure of underlying inflation that tries to filter out the noise; I like this measure partly because it’s an algorithm untouched by human hands and therefore leaves no room for motivated reasoning. And what this measure says is that underlying inflation is still a bit above the Federal Reserve’s 2 percent target, but not by much:

Credit…Federal Reserve Bank of New York

Still, what about interest rates? Many would-be home buyers, in particular, are feeling frustrated by high mortgage rates. Isn’t that a big difference from the way things were in the late ’90s?

Surprisingly, the answer is no. People remember that stocks were high back then; they tend to forget that interest rates were also very high. Indeed, mortgage rates were even higher than they are now:

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