The US and euro-zone economies can function very well with current interest rates

In the United States, the short-term interest rate (the Fed Funds rate) is 5.5%, the 10-year interest rate is 4.6%, headline inflation is 3.5%, inflation excluding energy and food is 3.8%. This leads to a real short-term interest rate of 1.7% to 2% and a real long-term interest rate of 0.8% to 1.1%, i.e. real interest rates below potential growth (which is between 2.3% and 2.5%). Actual growth in 2024 is likely to be around 2.5%. In the euro zone, the short-term interest rate (the repo rate) is 4.5% and the 10-year interest rate is 3.1%. Headline inflation is 2.4%, while inflation excluding energy and unprocessed food is 2 . 8 %. Headline inflation is being pulled down temporarily by the fall in import prices. The 10-year interest rate on government bonds is 3. 1 %. The real short-term interest rate, calculated with core inflation, is therefore 1. 7 %, which is slightly above potential growth; the real long-term interest rate is 0. 3 %, which is well below core inflation. Moreover, in both the United States and the euro zone, central bank surveys on the trend in credit demand (business, mortgage and consumer credit) and on credit supply conditions are showing a complete normalisation. In reality, there is no need to cut interest rates to achieve normal monetary conditions.