Real interest rates to remain elevated to 2030

Significance Real rates, adjusted for inflation, averaged across the G7 are at their highest level since 2013. Slowing global population growth and GDP argue for rates to fall in the next few years; however, government debts, deficits and spending priorities could keep them higher. Impacts The tendency to lower real interest rates will affect all economies because they tend to move together through integrated capital markets. Global public and private debt is at records relative to income, pressuring real interest rates upwards and countering the long-run trend. The falling real long-run rates trend makes central banks’ jobs trickier as they search for the neutral short-run rate, their policy tool. Deviations from trend often last 6-8 years, long enough for central banks to change their mandates such as raising inflation targets.