Gita Gopinath

A pleasure, Tracy and Joe.

Great to be on your show.

I mean, firstly, I think it's absolutely right to start with the conversation about what's happening in bond markets.

because frankly, despite all the many different shocks going around in the world, I actually do think the one that's most worrisome is what we see with public debt levels everywhere in the world.

In the US, we've seen yields go up.

It's a combination of things.

You just talked about all of them, which is one is the fact that inflation is now expected to be higher.

And there is a sense that the real rate at which the economy will stay

you know, at a somewhat stable level of inflation is higher.

So the kind of the real interest rate has drifted up.

The R-star has drifted up from pre-pandemic when it was like half a percentage point.

Now it's one percentage point.

But on top of that, you have the premia that's coming from the risk of inflation, from very importantly, the last fiscal deficits that the U.S.

is running and is projected to continue to run into the foreseeable future.

And of course, the third element, which is the AI boom and the expenditure, the capital expenditure that's being undertaken for that is also shifting the R-Star up to maybe even higher than one percentage point.

So because of all these reasons, we've suddenly moved away from the pre-pandemic period of low for long interest rates and what we were talking about, you know, the end of, I think we are at

have the end of secular stagnation at this point.

Secular stagnation was about the fact that there was not enough investment happening, especially in the private sector.

That is no longer an issue anymore.

So because of the combination of inflation, AI boom, fiscal deficits all over the world, high public debt everywhere, we are seeing yields go up and that's true in the US too.