Welcome to the Era of Incompetence

Two diametrically opposed scenarios exist for what will happen to global real interest rates over the next generation.

Those who predict generally low interest rates over the next generation point to rapid growth of productivity and potential output in the world economy. According to this view, the principal problem faced by central banks will not be restraining demand as it shoots above potential, but boosting demand as it lags behind potential. They point to the fact that the world's major central banks - the Federal Reserve, the European Central Bank, and the Bank of Japan - have so firmly established their anti-inflation credibility that the inflation risk premium has been wrung out of interest rates.