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What would a normalisation of real long-term interest rates entail?
We look at the evolution of real long-term interest rates (calculated with long-term inflation expectations) in the United States and the euro zone. If the shift to a more inflationary economic equilibrium characterised by many scarcities leads to a normalisation of monetary policies, how high will real long-term interest rates go? What reference should be used to determine this? It is well known that the neutral real interest rate, which results from the savings-investment equilibrium, makes no sense in an open economy with high capital mobility; Does the real long-term interest rate follow a similar path to potential growth in the medium term? The answer is yes; How high was the real long-term interest rate on average in the past when there were monetary cycles linked to inflation? We see that at the time, real long-term interest rates were clearly positive: on average 1.3% in the United States and 1.7% in the euro zone.
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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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