Normalization of interest rates & monetary policy - EP173

<p>Last year we saw the beginning of the normalization of interest rates and monetary policy, as central banks responded to accelerating inflation. Show host Gene Tunny talks about the current tightening cycle and when it might end with his colleague Arturo Espinoza. Among other things, Gene and Arturo discuss what history tells us about typical interest rates and returns on capital, referencing UK bank rate since 1694, interest rates on UK government consols, and returns on land written about by Jane Austen and Honoré de Balzac. They also consider whether we might see 17-18 percent interest rates again in Australia, rates which were last seen in 1989-90. </p><p>Please get in touch with any questions, comments and suggestions by emailing us at <a href="mailto:contact@economicsexplored.com">contact@economicsexplored.com</a> or sending a voice message via <a href="https://www.speakpipe.com/economicsexplored">https://www.speakpipe.com/economicsexplored</a>. </p><h3>What’s covered in EP173</h3><ul><li>What’s been happening with interest rates? [3:00]</li><li>What is monetary policy normalization? [6:00]</li><li>How many more interest rate increases will be needed? [11:11]</li><li>Will we have a recession this year? [19:12]</li><li>Is there a risk that we could get back to the crazily high interest rates seen in 1989-90 in Australia? [24:00]</li><li>What is the equilibrium rate of interest? What is the real interest rate? [26:54]</li><li>The main takeaway from this episode: monetary policy is still in a tightening cycle because inflation is too high [38:43]</li></ul><h3>Links relevant to the conversation</h3><p>Data released since the episode was recorded</p><p>Australian retail trade fell 3.9% in December, suggesting interest rate increases are starting to bite, meaning the RBA faces an even more difficult challenge in deciding how many more interest rate increases to make:</p><p><a href="https://www.abs.gov.au/statistics/industry/retail-and-wholesale-trade/retail-trade-australia/dec-2022" target="_blank">https://www