Jim Grant: A Multi-Decade Bond Bear Market Lies Ahead

And inflation higher for "much, much, much longer"

When today's guest was last on this program back in June, he predicted that interest rates would remain "higher for longer".

And the ensuing seven months proved him correct.

With inflation remaining stubbornly sticky, new tariffs and other disruptive policies announced by Trump administration, $trillions in US Treasury debt to mature this year, and the return of the bond vigilantes....where are interest rates most likely headed from here?

To find out, we have the great fortune of speaking today with perhaps the world's foremost living expert on interest rates, James Grant, founder and editor of the highly-respected market journal Grant's Interest Rate Observer.

Jim sees us at the beginning of a multi-year bear market in bonds.

Which is why he thinks Treasury Inflation-Protected Securities (TIPS) are an asset class worthy for investors to consider now.

Here’s a write-up he recently penned on TIPS that he’s kindly making available to Thoughtful Money readers — click here to download it.

For the full interview with Jim, click here or on the video below:

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Adam’s Notes: Jim Grant (recorded 2.12.25)

• Jim reiterated his forecast from June that interest rates would remain elevated for a prolonged period, driven by structural inflationary pressures and excessive government spending. He believes the 40-year bond bull market that began in 1981 ended around 2020-2021, potentially giving way to a multi-decade bond bear market. Historically, interest rate trends have moved in generational cycles, with prior bear markets lasting 30-40 years. If this pattern holds, interest rates could remain structurally higher, impacting corporate financing costs, real estate values, and government debt service. As debt rolls over at significantly higher rates, companies and governments will be forced to restructure their balance sheets or face financial distress.

• The latest inflation report showed a CPI reading of 3.0%, slightly above the 2.9% expectation, reinforcing concerns that inflation remains persistent despite the Federal Reserve’s prior rate hikes. Jim points to government overspending as a key contributor, with the U.S. running a budget deficit of approximately 6.5-7% of GDP even in a period of solid economic growth. He highlights the discrepancy between government CPI housing cost estimates (26-27%) and private sector estimates from Zillow (around 40%), suggesting inflation may be underestimated. The Federal Reserve and policymakers face a dilemma: cutting rates could reignite inflation, while maintaining high rates could trigger financial instability.

• Jim criticizes the Federal Reserve’s decision to cut interest rates by 50 basis points last year, calling it a case of "poor risk management." He cites investor Stan Druckenmiller, who argued that the Fed failed to consider the possibility of a Trump election, which could further stimulate inflation and market volatility. Jim also questions the Fed’s political neutrality, pointing out that the institution has shown a historical bias toward Democratic policymakers. He references the rejection of Judy Shelton’s nomination to the Federal Reserve Board, suggesting that alternative monetary viewpoints, such as a return to a gold standard, are systematically sidelined.

• Rising interest rates pose significant risks to