How people will react to increases in expected, and then actual, short-term interest rates after such a period is hard to tell. Moreover, to counter the financial forces weighing on the economy, the Federal Reserve purchased large quantities of longterm agency, agency mortgage-backed, and Treasury securities, putting significant downward pressure on longer-term interest rates. We are now winding down those purchases.
Either way, however, it would seem unlikely that we could bank on a resumption of sustained growth in assets, in real per person terms, of 7 per cent per year over the next few years. It follows that the saving rate is unlikely, any time soon, to decline back to where it was in 2005.