Report
Long-term interest rates will not fall, even when central banks cut interest rates
We argue that the current rise in nominal long-term interest rates (in the United States, the United Kingdom, the euro zone) is irreversible. Even when central banks cut interest rates, long-term interest rates will remain high. We see four reasons that support this argument: The central bank rate cuts have already been anticipated; The rise in expected inflation in the United Kingdom and the euro zone reflects the decline in central banks’ credibility and will be very difficult to correct; The normalisation of real long-term interest rates is consistent with the situation of ( ex ante ) excess of investment over savings and the spontaneous tendency for inflation to be higher than the 2% inflation target that will be seen in the three countries/regions; The forthcoming reduction in the size of central banks’ balance sheets.
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