At what level will 10-year interest rates be in 10 years?
Financial markets currently expect a modest rise in 10-year interest rates in the next 10 years (we look at the United States and the euro zone). What mechanisms could imply that 10-year interest rates will rise much more on this horizon? Structural inflation factors: reshoring, population ageing, energy transition; Social and political pressure to significantly raise the value of low wages; A fall in the global savings rate due to population ageing. Pure economic analysis therefore leads to expectations of a greater rise in long-term interest rates than what financial markets expect. But given public and private debt levels, such a rise in interest rates would be catastrophic. Should we not then also expect fiscal dominance to continue, i.e. that central banks will conduct a low interest rate policy aimed at preventing a loss of government fiscal solvency? Central banks would then prevent a rise in inflation from having a significant effect on interest rates .