The consequences of yield curve control

Central banks in OECD countries are shifting either explicitly or de facto to a policy of yield curve control, that is control of long-term interest rates. What consequences does this choice entail? The usual determinants of the slope of the yield curve (public debt, expected inflation) no longer have any effect; The money supply becomes endogenous; it can no longer be controlled; When inflation normalises after the COVID crisis, real long-term interest rates will become structurally negative; Negative real long-term interest rates will lead equity valuation (PERs) and real estate prices to rise strongly; they will also lead to a strong incentive to borrow; Demand shocks are no longer offset by changes in long-term interest rates, leading to high variability in asset prices and economic growth rates. So a clear consequence of this choice of yield curve control is financial instability: asset price bubbles, rising debt, high variability in asset prices.