Navigating the Era of Persistent Interest Rates: Assessing the Future of US Bond Yields

Despite recent fluctuations, long-term interest rates are expected to remain above the ultra-low levels seen in the past, even as inflation subsides. The prevailing belief that government debt is a "free lunch" and that interest rates would stay low forever is being challenged. The idea of using central banks to purchase government debt, as seen in modern monetary theory, is flawed as it dismisses the risks of inflation and interest rate increases. The existing debt overhang and its implications are often ignored by proponents of spendthrift fiscal policies. The transition to higher interest rates could be challenging for European economies, and Japan may struggle to move away from its zero-interest rate policies. Policymakers and economists may need to reassess their beliefs in light of current market realities.