Simply put, it’s important to think ahead. I hope that by highlighting some key drivers of long-term real interest rates and how they may evolve, I will help people be better prepared in the eventuality that we have entered a new era of structurally higher interest rates.
You need only look to the recent stresses in the global banking sector to see examples of poor planning for the possibility of higher rates. And while I explained why considerable uncertainty remains around the outlook for real rates, let me close by circling back to nominal rates, which you will recall include an inflation component.