The Price of Money: A Guide to the Past, Present, and Future of the Natural Rate of Interest

An accessible guide to the natural rate of interest, why it is likely going up, and what that means for the future of the global economy and markets.

Ask most people who sets interest rates, and they'll say it's the central bank. At a fundamental level, though, decisions by the Federal Reserve, European Central Bank, and their peers around the world are constrained by the natural rate of interest. The natural rate - the interest rate that balances supply of saving and demand for investment, whilst keeping inflation low and employment high - has moved from academic obscurity to a central role in monetary policy, and the operation of the economy and financial markets.

For almost half a century from the 1970s to the 2010s, the natural rate in the US and other advanced economies fell. In the last decade, it has started to rise. In the years ahead, the cost of borrowing has further to climb. That shift from falling to rising borrowing costs reflects seismic shifts in demographics, technology, and geopolitics. In the years ahead, risk factors from war to artificial intelligence and climate change could accelerate its rise. For everyone from Ministers of Finance balancing the books to Wall Street titans making the next big bet, the shift from falling to rising borrowing costs has profound consequences. In a world where money is more expensive, the cost of managing it poorly gets higher.

In The Price of Money, the Bloomberg Economics team explain the evolution of the natural rate, the forces driving it, where it is headed, and what that means for everything from government debt to saving for retirement.

Jamie Rush is Chief European Economist for Bloomberg Economics, based in London. He has previously worked at the British Treasury, the New Zealand Treasury, and the UK Office for Budget Responsibility. He holds a PhD in economics from the University of Sheffield.

Tom Orlik is Chief Economist for Bloomberg Economics, based in Washington DC. Previously, Orlik was the Chief Asia economist for Bloomberg and China economics correspondent for The Wall Street Journal, based in Beijing. Prior to a decade in China, he worked at the British Treasury, European Commission, and International Monetary Fund. He is the author of Understanding China's Economic Indicators and China: The Bubble that Never Pops.

Stephanie Flanders is global head of Economics and Government at Bloomberg News and Research, based in London. She was previously Chief Market Strategist for Europe at JP Morgan Asset Management and Economics Editor at the BBC. She has also served as Senior Advisor to US Treasury Secretary Lawrence H. Summers, and worked at the New York Times, Financial Times, Institute for Fiscal Studies, and London Business School. She is an Honorary Fellow of Balliol College, Oxford and a Fellow of the Society of Professional Economists.