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Peter R. Orszag

Maybe Low Interest Rates Won’t Last Forever

One fundamental deflationary force might soon disappear.

When will rates rise again?

When will rates rise again?

Photographer: Carl de Souza/AFP via Getty Images

Conventional wisdom and financial markets agree: The era of near-zero interest rates will last as far as the eye can see. Yet the prolonged era of low rates may in fact be ending, according to a provocative new book by Charles Goodhart of the London School of Economics and Manoj Pradhan of Talking Heads Macro.

Over the past decade in particular, inflation-adjusted interest rates have remained remarkably low. The 10-year yield on inflation-indexed Treasury notes at constant maturity in the U.S. fell below 1% in 2011 and fluctuated close to zero until the pandemic. The yield in the third quarter of 2020 averaged -0.9%.