Forces that have been pushing borrowing costs down for as long as we can remember haven't vanished, says Bloomberg Opinion columnist Daniel Moss.
is doing the right thing by taking his time to remove accommodation.
The idea isn't without controversy: Former US treasury secretary Larry Summers and Olivier Blanchard, one-time chief economist at the International Monetary Fund, jousted over it in March . John Williams, president of the Federal Reserve Bank of New York and a research heavyweight, told a recent Fed conference that there's no evidence very low rates ended with the pandemic.
Real rates receded markedly in South Korea, Taiwan, Thailand and the Philippines over the decades; less so in Malaysia, Indonesia and China. He traced the long-term downtrend back to the 1990s and canvassed a range of factors behind it, including ageing societies spurring demand for safe assets, slackening global growth, and the replenishing of reserves in emerging markets.
But what if the past few decades still don’t offer sufficient perspective? In a Bank of England staff paper published in 2020, Paul Schmelzing found that long-term real rates have been inching lower since the Middle Ages. Neither wars, the rise and fall of monarchs, let alone modern totems like inflation targets, have interrupted that gradual downward slope illustrated below.
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