The International Monetary Fund (IMF) has projected that if the United States succeeds in curbing inflation through aggressive interest rate hikes, the era of ultra-low interest rates seen before the COVID-19 pandemic could return.
According to Bloomberg News on the 10th (local time), the IMF recently stated this in its World Economic Outlook (WEO), citing population aging and productivity slowdown as the basis.
The IMF forecasted that the U.S. could maintain a neutral interest rate below 1% over the next decade. The neutral interest rate refers to the level of interest rates that neither triggers inflation nor deflation (a decline in prices).
The IMF viewed that with low neutral interest rates, central banks around the world would have limited scope to implement economic stimulus measures. Accordingly, it expected central banks to lower interest rates close to 0% to respond to economic recessions.
Some countries are expected to reduce the burden of national debt increased due to COVID-19 through low interest rates. However, the IMF recommended that advanced countries should reduce fiscal spending to lower the national debt-to-GDP ratio.
Bloomberg reported that this IMF projection differs from the forecast of former U.S. Treasury Secretary Lawrence Summers. Earlier, Secretary Summers predicted that the U.S. real neutral interest rate would remain around 1.5 to 2.0%.
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