Report
Patrick Artus

How can long-term interest rates be kept well below long-term growth in the long term?

It is because long-term interest rates in OECD countries are now much lower than nominal potential growth that public and private sector debt ratios are not a problem, fiscal deficits can be high, and financial and real estate asset prices are rising. Exiting this regime could therefore trigger a serious financial crisis (debt crises, need to rapidly reduce fiscal deficits, fall in asset prices). But how can long-term interest rates be kept below long-term growth in the long term? Technically, it is sufficient that central banks, which do not require a return on their assets, simply continue to buy bonds as much as needed (this is "yield curve control" ) ; But from a political economy perspective, is that possible? Households hold, directly and indirectly, a very large quantity of bonds. Will they accept the loss of income due to very low interest rates in the long term? Or could there ever be a “flight from bonds” that even central banks could not absorb?
Provider
Natixis
Natixis

Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.

 

Analysts
Patrick Artus

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