At FinancialMediaGuide, we note that the Jackson Hole Symposium is increasingly becoming not only a venue for signals from the Fed, but also a forum for discussion of the long-term forces shaping the global financial architecture. This year, the key question was the outlook for the evolution of the real neutral interest rate (r-star), an indicator that William Blair called “the most important rate for both domestic economies and global markets.” At Prime Focus, we view these studies as a guide for investors who want to understand not just the cycle of the coming years, but the fundamental trends for a generation to come.
The report, titled “The Race Between Asset Supply and Demand,” presented a simple but key idea: Interest rates reflect the balance between the demand for assets from households and foreign holders and the supply – government debt, physical capital, and corporate wealth. When demand exceeds supply, rates fall; When supply grows faster than demand, yields move up.
FinancialMediaGuide commentary: Historical data confirms this dynamic. Since 1950, demand for assets has increased by 415% of GDP, while supply has grown by only 31%. This imbalance has been the main reason for the structural decline in rates over the past decades.
The impact of demographics has been critical. An aging population and the concentration of wealth have driven demand, while rising government debt and accumulated capital have driven supply. Looking ahead to 2100, demand is projected to grow by another 200% of GDP, while government debt could reach 250% of GDP. But even in this scenario, demand will continue to “outpace” supply, keeping r-star low, according to William Blair.
However, there is a major uncertainty factor – productivity. Over the past 75 years, weak productivity growth has reduced rates by about 118 basis points. Now a new driver is emerging – artificial intelligence. If technology does deliver the long-awaited efficiency boost, it could change the trajectory of r-star, push up global rates, and re-price debt and assets.
FinancialMediaGuide view: For investors, these findings mean preparing for a “two-speed world”: the long-term trend toward low rates will persist, but isolated periods of technological breakthroughs can dramatically change the balance. This means that asset management strategies in the 21st century must take into account not only macrocycles and central bank policies, but also structural shifts in productivity.
The research presented at Jackson Hole shows that the future of interest rates will be determined not only by the Fed’s decisions, but also by the global race between asset supply and demand. For investors, the key takeaway is clear: the era of cheap capital may be prolonged, but breakthroughs like AI could be a turning point. And these are the kinds of factors that we highlight at Prime Focus as signals that cannot be ignored.
