The long-term history of real interest rates has centered around long-term growth rates and has often been judged to be 2 percent. If we expect a 2 percent real rate, current rates for developed countries are way too low and still suggest very accommodative monetary policy. Clearly at sub-2% US inflation last year, long US real rates were around zero and much higher than for other developed, but the current inflation surge puts US real rates near developed market lows.
A good analysis of real rates trends can be found in "Global Trends in Interest Rates", a NY Fed research paper from a few years ago. Any updating of their work will only reinforce their thesis on continued low real rate trends. Calculating the real rate and creating a historical real rate series is not easy. Their work shows that the real rate trend has been lower and on a long slide, but real rates are also subject to high variation based on several broad macro factors. These trends are applicable to all developed markets.
Current inflation expectations and actual inflation are pushing real rates to significantly low levels. We are now averaging sub-zero real rates for years. The flight to safety or convenience yield, demographics, slower growth, as well as monetary policy have all pushed long-term real rates lower which suggests that it is hard to handicap nominal rates at much higher than long-term inflation and a term premium. However, even by this measure, yields should move higher, yet continued Fed policy makes any of these forecasts for higher yields suspect. The market distortions will continue as long as QE continues.
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