Federal Reserve Bank of New York: Natural interest rates have significantly increased since 2019, with declining attractiveness of government bonds being the main reason.

Researchers at the Federal Reserve Bank of New York recently pointed out that global key interest rates are on the rise, and one of the important reasons behind this is that the attractiveness of government bonds as "safe and liquid assets" is declining. In a blog post, New York Fed researchers Marco Del Negro, Elena Elbarmi, and Michael Pham stated that the indicator known as the "natural rate" - the short-term equilibrium interest rate when the economy is running at full capacity and inflation is stable - has shown a statistically significant increase since 2019. In the United States and other developed economies, this rate has risen by approximately 1 percentage point. The researchers pointed out that while there are multiple factors driving the increase in the natural rate, the decrease in investor demand for the safety and liquidity of government bonds may explain up to half of the rate increase. This change is corroborated by the sustained narrowing of credit spreads on U.S. corporate bonds, with the underlying reasons being "varied," including the significant increase in the debt levels of developed economies. The natural rate is a theoretical concept, but it is important in monetary policy formulation as it serves as a key reference for central banks to judge whether policy rates are too tight or loose. Federal Reserve Chairman Powell likened the natural rate to the "North Star" that sailors rely on for navigation, guiding the direction of monetary policy. The article points out that through statistical analysis, it can be observed that both the natural rate in the U.S. and its global counterpart have shown a clear upward trend after the COVID-19 pandemic. In contrast, from 1990 to 2019, strong preferences for safety and liquidity by investors pushed down government bond yields in developed economies, to some extent lowering the level of the natural rate. In addition to the declining attractiveness of government bonds, the researchers also mentioned that the expectation of productivity growth brought about by artificial intelligence is one of the potential factors driving the increase in the natural rate. Furthermore, facing challenges such as demographic changes and an expected increase in military spending, the debt-to-GDP ratios in some economies may continue to rise, which could also be factored into market rate expectations ahead of time.