Typically this has averaged about 0.75 to 1 percentage point, Summers said.
Adding up the three components, then it’s likely investors over the next decade will be “looking at 4.75 on the 10-year — and it obviously could end up being higher than that,” Summers said.
A Different Economic Era
While “nobody knows” how things will turn out, the former Treasury chief highlighted that many elements apparent today suggest that the economy is in a different era.
Employers have relatively high demand for workers, and workers appear to be increasingly empowered in their talks with companies, he said.
There has also been a change in the previous trend of “growing competitive pressure from globalization” that helped to hold costs down, he said.
Summers said “I would guess that these higher long-term rates are with us to stay — and if I had to bet, I think I bet that they’re more likely to go higher, than to go lower.”
As for the near-term economic outlook, Summers said, “My guess is that the economy will stay strong for at least a little while from here — I’d be very surprised now if a recession started during 2023.”
Without a downturn, that would make it “much more likely” that current market pricing for Federal Reserve policy proves wrong, he said — something that would then push up yields.
There’s still a “good chance” of a recession next year, he also said.
(Image credit: Bloomberg)