The End of Zero Interest Rates? | Jeffrey Frankel's Blog
August 14, 2023 — What a difference a year makes! In 2021, interest rates were close to zero in the US and the UK, and slightly negative in the eurozone and Japan. They were expected to remain low indefinitely. Remarkably, as recently as January 2022, investors thought that the probability the interest rate would rise above 4.0 % within 5 years was only 12% in the US, 4 % for the euro-zone, and 7 % for the UK [p.45]. Those were short-term nominal interest rates. Correcting for expected inflation, real interest rates were substantially negative and expected to remain so. Even after most central banks started raising interest rates – the Fed in March 2022 – it was in reaction to higher inflation. As a result, real interest rates were still substantially negative, as recently as a year ago. Furthermore, short-term interest rates rose more than long-term rates did that year: The yield curve inverted in October 2022, signaling that financial markets thought the central banks would
Tweet August 14, 2023 — What a difference a year makes! In 2021, interest rates were close to zero in the US and the UK , and slightly negative in the eurozone and Japan . They were expected to remain low indefinitely. Remarkably, as recently as January 2022, investors thought that the probability the interest rate would rise above 4.0 % within 5 years was only 12% in the US, 4 % for the euro-zone, and 7 % for the UK [ p.45 ]. Those were short-term nominal interest rates. Correcting for expected inflation, real interest rates were substantially negative and expected to remain so. Even af
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