Will US interest rates return to pre-pandemic levels in the medium term, as some people predicted, or will they remain high for a longer period of time? Even Nobel laureate economist Paul Krugman said he had no clue about it.
“I'm just confused about interest rates,” Krugman said in an interview. “Whoever it is, claiming to know the exact answer is fooling themselves.”
The yield on US 10-year Treasury bonds is currently around 4.4%, yet it was less than 2% on the eve of the outbreak. The non-partisan Congressional Budget Office predicted earlier this year that it would be around 4% over the next ten years.
Krugman, who currently works at the City University of New York, said that the current situation may have changed due to many factors compared to before the pandemic. As an example, he said that immigration has increased dramatically, and that the Biden administration's industrial policy “is attracting a large amount of investment in manufacturing.”
He also said that thanks to new technologies, including artificial intelligence, companies are also likely to increase capital expenditure.
Even so, Krugman went on to say, “Maybe 2019 should actually still be our benchmark, and we're going back to very low interest rates.”