Real Interest rates will return toward their extremely low pre-pandemic level
That would be in keeping with the downward trend in the natural real interest rate since the early 1980s, itself the result of aging populations and disappointing total factor productivity growth.
it is reasonable to assume that in two or three years, we will return to a world in which advanced-economy central banks’ nominal policy rates are regularly constrained by the effective lower bound (ELB).
Even though nominal policy rates have risen significantly since 2020, with the US Federal Reserve’s policy rate now at 4.75-5%, real (inflation-adjusted) short-term policy rates are still barely positive in the United States, and they remain materially negative in most other advanced economies.
According to the Federal Reserve Bank of Cleveland, the US ten-year real interest rate was only around 2%, and that was its highest level since the 2008 financial crisis.
Willem Buiter Proj Synd 18 April 2023
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