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Longer Lives Lower Interest Rates

Ever since the global financial crisis, the real interest rates of developed economies have remained in negative territory. Nominal interest rates hover near zero, and inflation rates, although quite low for historical standards, have remained positive (in most countries, at least on average). What’s more, negative nominal interest rates have even been observed in some developed countries for the first time.

The typical explanation for these low real rates is the extremely loose monetary policies (qualitatively, through lowering interest rates, and quantitatively, through bond-buying programs) put into place in response to the crisis. In the past several years, many of Wall Street’s gurus have persistently warned that the low-rate environment will soon be over and central banks will begin the tightening cycle.

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