The interest-rate cutting-cycle seems to be underway. But what will the new normal look like? A recent insight by LGT Private Bank Europe points out that central bank target rates vary over time, and cyclical developments are always seen through the lens of long-term equilibrium. Thus, there are neutral levels of interest rates.
A neutral rate of interest “allows an economy to operate at full employment and with stable inflation around the central bank’s target,” explains Tina Jessop, Senior Economist at LGT. The private bank believes that neutral rates in real terms (after deducting inflation) are currently between 0.5% and 1.0% in the USA, and close to 0% in the eurozone.
Read the full insight here.
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