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The Mystery of US Interest Rates

The near-consensus since the start of the pandemic has been that there are powerful fundamental factors keeping the neutral interest rate very low, and that there have been no major changes to those fundamentals. Why, then, is the long-term real safe interest rate so far above the neutral level?

BERKELEY – In the United States, the long-term real safe interest rate – the inflation-adjusted return on low-risk investments such as Treasuries – is, in addition to “financial conditions,” the key mechanism influencing both the incentive to build and the balance of net exports (owing to its effect on the exchange rate).