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Harvard professor warns of further shocks

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Harvard professor warns of further shocks

Renowned economics professor Kenneth Rogoff is significantly more pessimistic than other economists about the development of the European economy, also because of the Ukraine war. But the Americans also have to bite the bullet, he thinks.

Kenneth Rogoff assumes that interest rates will continue to rise in the coming years and remain on a high plateau.

The former chief economist at the International Monetary Fund (IMF) therefore predicts nominal interest rates on ten-year government bonds in the USA for the rest of the decade, which will average over 4 percent.

At the same time, real interest rates and inflation are also likely to be higher, he said in an interview on «Bloomberg TV» (Item subject to a charge).

aftermath of the financial crisis

Rogoff called the rise in real, inflation-adjusted interest rates a reversal of the sharp decline seen after the financial crisis more than 12 years ago.

The yield on ten-year government bonds is currently 3.7 percent. After the 2008 financial crisis, annual economic growth from 2009 to 2020 averaged 2.4 percent.

Raised real interest rates

The Harvard professor estimates that real interest rates will settle “somewhere between 1 and 2 percent”. For comparison: before the pandemic, the rate was around half a percent, according to many economists.

In addition, Rogoff said the Federal Reserve will struggle to keep inflation at 2 percent. The higher national debt, increased defense spending and populist pressure would not make it easy for the central bank to push inflation towards this goal.

Defense spending fuels inflation

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The renowned scientist is also much more pessimistic about Europe than other economists. This became clear at the World Economic Forum (WEF) in Davos, where he predicted a deep recession in Europe at the beginning of the year.

According to Rogoff, Europe needs to invest much more in security in the future. The increasing spending on defense in other regions of the world is one of the reasons why inflation will remain high for a long time.

More shocks in Europe

Another reason for the stubborn rise in prices is green energy, for which about three times as much has to be spent worldwide as it is currently. As long as the uncertainty remains in Europe, there will be no large-scale investments. In addition, one must be prepared for further shocks.

With the recent escalation in the Ukraine war, Rogoff was once again right.


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