Given the significant progress seen thus far, it would take a meaningful re-acceleration in price growth to motivate additional interest rate hikes in major economies, and a deep downturn could force central banks into delivering the easing currently priced into markets.

But because inflation has fallen in line with policy expectations, real interest rates remain elevated, and could ultimately settle well above pre-pandemic levels as the world grapples with changing demographics, geopolitical uncertainties, extraordinary levels of indebtedness, deepening capital scarcity, and higher long-term volatility risks. For households, businesses, and governments, the extremely demand-stimulative borrowing environment that prevailed for more than a decade now looks like a temporary aberration.

Real 10-year bond yields, %