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One solution is for real interest rates to become highly negative
The reasoning is as follows: It is likely that inflation will eventually pick up (we look at the United States and the euro zone) due to the effects of the energy transition, calls to increase low wages, population ageing, industrial reshoring, etc. But central banks will not be able to take the risk of triggering a public debt crisis or a collapse in asset prices: nominal interest rates will react little to the rise in inflation; As a result, real interest rates should be expected to remain highly negative, which will be conducive to deleveraging and continued high asset prices, but will lead to a highly unstable economy (if nominal interest rates do not react to inflation, an inflationary shock increases demand, which reinforces the effect of the shock on inflation).
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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.
Patrick Artus
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