There is growing evidence to suggest that, in the coming years, the US Federal Reserve and other central banks will find themselves back where they were before the pandemic, with their primary policy instrument constrained by the natural real interest rate. Fortunately, this old problem now has a prudent technological solution.
NEW YORK – In its latest World Economic Outlook, the International Monetary Fund establishes a plausible case that once inflation has been squeezed out of the system, interest rates in the advanced economies (and in many emerging markets) will return toward their extremely low pre-pandemic levels. That would be in keeping with the downward trend in the natural real interest rate since the early 1980s, itself the result of aging populations and disappointing total factor productivity growth.
NEW YORK – In its latest World Economic Outlook, the International Monetary Fund establishes a plausible case that once inflation has been squeezed out of the system, interest rates in the advanced economies (and in many emerging markets) will return toward their extremely low pre-pandemic levels. That would be in keeping with the downward trend in the natural real interest rate since the early 1980s, itself the result of aging populations and disappointing total factor productivity growth.