- As a consequence of the global leverage overhang and the modest rates of potential trend growth to which the major economies are converging, we believe the world’s major central banks have entered a new era for global monetary policy rates, which we call The New Neutral.
- In this world, neutral policy rates will be well below the policy rates that prevailed before the financial crisis; we believe the neutral policy rate for the U.S. over the next several years will likely be closer to 0% in real terms than to the 2% real neutral policy rate that prevailed before the crisis.
- Although the neutral policy rate will anchor the expected average policy rate, it will not serve as either a ceiling or floor for the actual policy rate, so investing in The New Neutral will require getting the business cycle right, as well as the neutral policy rate.