Gita Gopinath

A few things changed.

One, the AI boom was unexpected.

That was not something that was

being priced in markets pre-pandemic, for sure.

That big increase in demand for capital coming from the private sector is one big change.

The other big change is the fact that fiscal deficits are now projected to stay at levels that nobody was expecting the U.S.

to run

close to 7% fiscal deficits for the foreseeable future.

That is another important factor.

And the third is the composition of who's the marginal buyer of this debt.

So we had a period when central banks everywhere were buying government debt, and that also helped keep interest rates low.

In fact, that was part of the strategy of how to

you know, strengthen the economy, quantitative easing was part of the toolkit.

And so that helps keep interest rates low, but that's changed.

And now we have the central banks everywhere who have either stopped buying or they're running it down like it's happening in Japan.

And the marginal buyer are the more volatile investors.

Hedge funds in the US are the market makers over here.

And so whenever there are any shifts in global market conditions, you see a lot more rate sensitivity than you would have seen

if it was mainly official credit flows.

And by the way, that's also true about capital flows coming into the US.