Gita Gopinath on Why Interest Rates Have Surged All Around the World | Odd Lots

Global bond markets are undergoing a significant regime change, characterized by rising yields and the end of secular stagnation. The current economic landscape is driven by massive fiscal deficits, aging demographics, and a surge in capital demand fueled by the AI boom. Gita Gopinath, First Deputy Managing Director of the IMF, highlights that while AI offers potential for long-term productivity growth, it currently acts as a source of inflationary pressure and capital scarcity. Policymakers face the difficult challenge of distinguishing between growth-enhancing investments and unproductive government borrowing, both of which push the neutral interest rate (R-star) higher. With central banks no longer acting as primary buyers of sovereign debt, markets have become more volatile and sensitive to global shocks, leaving governments with less fiscal space to respond to future crises.