Paul Krugman, a winner of the Nobel Prize in economics, said Tuesday that the trajectory of interest-rate levels in the medium term is completely uncertain.
“I am fanatically confused” on whether borrowing costs will stay above prepandemic levels, Krugman told Bloomberg Television in an interview. “Anyone who claims to know for sure what the answer is to that, is deluding themselves.”
The yield on the ten-year Treasury note (US10Y) changed hands at 4.41% in Tuesday midafternoon trading, compared with below 2% just before the pandemic hit.
Policymakers have held the benchmark interest rate at a 23-year high of 5.25%-5.50% since July 2023. Officials at the Federal Reserve broadly have made the case they can afford to remain patient before starting rate reductions, citing a tight labor market, solid economic growth and stubborn inflation.
In March, Fed policymakers marginally raised their median projection of their policy rate over the long run to 2.6% from 2.5%.
Compared with pre-Covid, some dynamics have “changed the picture,” Krugman told Bloomberg TV. He pointed to significantly higher levels of immigration, as well as Biden administration policy, “which is inducing a lot of manufacturing investment.”
Also, capital spending among business potentially may be on the upswing, Krugman added, as they seek to implement artificial intelligence and other new technologies.
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