We are, in my view, more likely than not to return to inflation at around 2 per cent a year, or perhaps just a little bit higher

 Real interest rates fell for a generation, before reaching negative levels during the pandemic. Since then, they have recovered sharply. What happens now?

In its latest World Economic Outlook, the IMF addresses this question by investigating the “natural rate of interest”, which is defined as “the real interest rate that neither stimulates nor contracts the economy”. That is also the rate at which one would expect inflation to remain stable (in the absence of shocks). 

The natural rate is not directly observable. But it can be estimated. 

Blanchard argues that real interest rates will remain below the real rate of economic growth, which is crucial for debt sustainability.

Summers thinks they will be somewhat higher than the Fed’s estimate of a natural rate of 0.5 per cent.

So, assume inflation will decline to 2-3 per cent.

Assume, too, an equilibrium real rate of interest of 0-2 per cent. 

Then nominal short rates would be 2-5 per cent and, given risk premiums, longer-term rates would be 3-6 per cent.

At the lower end, debt sustainability would be simple. At the higher end, it would be a challenge.

Martin Wolf FT APRIL 18 2023

The future of interest rates is a riddle | Financial Times (ft.com)