Concur.*
From Neue Zürcher Zeitung's TheMarket.ch, September 5:
Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University, argues that the financial markets are at a turning point. In his view, investors must brace themselves for an environment with higher inflation, higher interest rates and higher volatility in the coming years.
Kenneth Rogoff is one of the most influential economists of our time. The Professor of Economics and Public Policy at Harvard University at Harvard University and former chief economist at the IMF has pioneered research on a wide range of topics. He’s the co-author of «This Time Is Different», published together with Carmen Reinhart, one of the most important analyses of the financial crisis of 2008/09.
In Mr. Rogoff’s view, the global financial markets are facing fundamental changes in the coming years. «I think we’re at a turning point. We’re entering a period where volatility is just going to be higher,» he says. «We’re not going back to this world of very reliably low inflation and low interest rates.»
In this in-depth interview with The Market NZZ, which has been lightly edited, he explains why he expects another surge in inflation in the not-too-distant future. He also comments on the impact of high debt on the economy, growing political pressure on central banks, a potential devaluation of the dollar and the opportunities and risks of artificial intelligence.
«We’re going to find more situations where the Fed takes a chance on inflationrising rather than having high unemployment»: Kenneth Rogoff.The inflation surge has largely subsided and central banks are in the process of easing interest rates. Are we about to go back to a more «normal» environment like before the pandemic?
Well, there was nothing normal about the pre-pandemic world. Inflation was lower than it had ever been in the fiat-currency era, and real interest rates were lower than they’ve been in five centuries. That period was not normal. No one ever should have thought it was normal. That means we’re probably going back to an environment similar to the one that existed prior to the global financial crisis.
What does that mean in concrete terms?
I can’t say exactly, but what really matters is real interest rates, especially long-term real interest rates. The 10-year inflation adjusted interest rate between 2012 and 2021 averaged zero, and it was negative for a significant amount of the time. A more normal level would be 1.5% or 2% on current trend, and that’s about where we are now. That’s a big change.
Why do you expect higher real interest rates?
Over long periods of time, real interest rates have been very volatile, and when there’s a big shock as there was after the global financial crisis, it tends to damp out over a few years. It didn’t happen because the pandemic came, but in the past, we’ve had many periods where real interest rates have been high, many periods where they’ve been low. This time, they just collapsed. So in hindsight, I think all this stuff about secular stagnation and «lower forever» was ex-post rationalization that was wrong.
But what about structural trends that are said to have a dampening effect on growth, inflation and interest rates? For example, the ageing population and weak productivity?
These two factors correlate well over the last few decades, but not over long periods. As a matter of fact, they don’t correlate at all with real interest rates. Today, my view on real interest rates is quite mainstream in terms of the market view. But academics, which tend to be slow moving, overwhelmingly still think we’re going to go back to zero. That’s partly because the academics tend to be left-leaning and want to spend a lot more on the government. Therefore, it’s convenient to think that you can borrow for nothing. But to me, that’s wishful thinking....
....MUCH MORE
*This is why loyal and long suffering readers get to see "Only The Dead Have Seen The End Of Inflation" every few months. With the repetition sometimes relieved by the queries:
Have we seen the inflation high-print for this decade? For this century?
