Are Real Interest Rates Negative?

Greg Mankiw points us to one of the many inflation-adjusted interest rates reported by this source and writes:

In standard models of asset pricing, negative real interest rates are most likely to arise if growth expectations are particularly low or if uncertainty is particularly high. Low growth expectations encourage households to save, which drives down equilibrium rates of return. High uncertainty drives up risk premiums, which in turn drives down the return on safe assets, perhaps below zero. Both forces seem to be working now.

A good description for why real interest rates are indeed low. I would just add that low growth expectations may also cause a drop in investment demand. All three explanations send shivers down my spine as far as the prospect for avoiding a recession this year.

But back to our source, which is FRED® (Federal Reserve Economic Data). There are lots of different notes with different maturities and due dates. There are only two other reported series that show negative real rates with several of them reporting real rates closer to 1%. So why is the 5-year note that is due on April 15, 2010 the one to watch?

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