What are financial markets expecting in terms of short-term interest rates?

At the beginning of January 2024, the 10-year interest rate on government bonds is 3.9 7 % in the United States and 2.6 4 % in the euro zone. The variability of long-term interest rates is high, which at equilibrium implies a yield curve with a positive slope. The markets are therefore implicitly expecting short-term interest rates of around 3% in the United States and 1.8% in the euro zone, which is incompatible with the expectation of fairly high inflation (pushed up by the costs of the energy transition and industrial reshoring, and by persistent labour markets tightness) to which central banks will have to continue to react. The short-term interest rate expectation implicit in actual long-term interest rates is therefore unrealistic, and is at least 80 basis points too low in the United States and the euro zone.