U.S. government expects another decade of negative interest rates?

The U.S. government expects us to face negative real interest rates for another ten years. This is evident from the new budget that the government recently brought out. Economists in the Biden administration foresee that inflation will slowly rise to 2.3% in the coming years, while short-term loan rates will remain much lower and will not return to the same level as inflation for another decade.

Also, the 10-year yield will not exceed the level of inflation until 2024, which means that we will have to deal with a negative effective interest rate for years to come. This is despite the fact that unemployment will continue to fall to just 3.8% in the coming years. That should spur the Federal Reserve to tighten monetary policy.

Of course, expectations may still change, but as it stands, savings will remain loss-making in the coming years. Not only in the United States, but most likely in Europe as well. After all, on this side of the Atlantic, interest rates on government bonds are even lower, while inflation is at a similar level.

The U.S. government expects negative real interest rates over the next decade

Long-term negative interest rates

As we wrote earlier, savings have been delivering for years Negative return on. Even before negative interest rates were introduced, it was not lucrative to leave money in a savings account for a longer period of time. This is for the simple reason that inflation has been higher than savings rates for years. In the long term, this has major consequences for the purchasing power of your savings.

With these new figures, the US government is sending a strong message, namely that it is taking into account interest rates that will remain very low for a long time to come. And it has to be, because the hole in the US budget has only widened under President Biden's leadership. With large fiscal stimulus programs, the government is trying to keep the economy going. And that is of course not free, because the saver pays the bill for it through inflation.

This contribution was made from Geotrendlines