Importantly, the term premium embedded in interest rates has been falling. The term premium reflects the extent of uncertainty about future prospects for inflation and for real economic activity. The reduction in the term premia appears to be associated, in part, with the greater economic stability we have been enjoying.
Real activity has become less volatile; moreover, inflation is lower and, as long as we at the Federal Reserve do our job, more predictable. 12 The huge inflow of foreign saving into the United States, undoubtedly, also has been important.