Below-growth interest rates: What consequences for savings?

The United States and the euro zone are likely to keep long-term interest rates lower than the growth rate for a long period. This is a tax on savers that restores fiscal solvency: it can be considered to be a fair choice compared with the choice of other taxes affect ing low-income households. But is this choice not dangerous? What effect does a long period of below-growth interest rates have on savings choices? The overall level of savings may fall if substitution effects prevail (the low level of interest rates discourages saving), which is not certain and is not the case at present; Within financial savings, savers are likely to prefer money-market assets (returns on which will not suffer as much as bonds) and illiquid assets (which makes it possible to capture illiquidity premia), to the detriment of liquid risky assets, whose returns are squeezed. A difficult situation may lie ahead for investors specialised in bonds .