About a month ago I read that Duff and Phelps was lowering their "normalized" risk-free rate from 3 percent to 2 1/2 percent.. This is definitely progress. Unfortunately the practice of producing a "normalized' risk-free rate is theoretically bankrupt. It supplants the arbitrary judgement of a few individuals at Duff and Phelps instead of the market driven interest rate that an investor actually has to consider.
Yesterday Federal Reserve Chairman Jerome Powell announced that interest rates will remain unchanged because inflation is projected to remain below 2 percent until the end of 2023. So it appears that Duff and Phelps will continue to be wrong about interest rates and advocating artificially depressing business values. Below is a chart that shows the monthly average interest rate on 20-year U.S. Treasury Bonds and Duff & Phelps fanciful risk-free rate.
Presently the spot or market rate is about 1 1/2 percentage points below Duff & Phelps' choice. Since an investor cannot obtain 2 1/2 percent now or in the foreseeable future, there is no justifying the usage of this arbitrary rate. Valuators who utilize such an approach are subjugating their own judgement to that of Duff and Phelps, which I believe violates professional standards. I recommend that Duff and Phelps acknowledge that after a near solid decade of being wrong they abandon issuing unjustifiable interest rate guidance.