Harvard University economist Kenneth Rogoff says the days of low interest rates are gone and that Americans should brace for a future where borrowing stays expensive.
“I think real interest rates are going to be higher for a very, very long time. That era of low interest rates is over,” Rogoff said in a June 20 interview with CNBC.
The Dollar Is Losing Global Clout
Rogoff warned that the U.S. dollar is gradually losing its dominance in global markets.
While it isn’t being replaced entirely, other currencies are gaining ground, especially in Asia.
“China, for a very long time, probably should have decoupled significantly from the dollar. It’s happening,” he said.
“The rest of Asia is not necessarily going to instantly follow China, but it’s their major trading partner.”
This shift, often called de-dollarization, has been in motion for years but is now accelerating.
According to Rogoff, U.S. sanctions are playing a role in pushing countries like China away from the dollar.
“They have to cut back their Treasury holdings. They’re less inclined to peg to the dollar.”
A Weaker Dollar Could Mean Higher Rates
Rogoff believes a shrinking role for the dollar in international trade will result in higher interest rates at home and reduce the effectiveness of U.S. sanctions.
“It’s not the same thing as replacing the dollar, but it’s certainly going to defang it to some extent,” he said.
“And it’s going to put pressure on U.S. budget interest rates, and Americans are not prepared for any of [that].”
Fed Independence Under Threat
Rogoff also expressed concern about the political pressure facing the Federal Reserve.
Although President Donald Trump hasn’t removed Fed Chair Jerome Powell, there’s speculation about potential replacements, which could undermine the Fed’s credibility.
“There are a lot of people who want to put pressure on the Fed. It’s not just President Trump,” Rogoff said.
He warned that if the U.S. faces a major financial or military crisis, “Fed independence could prove fragile.”
Trump has said he will allow Powell to finish his term, but future appointments may signal changes.
“If you’re a candidate for the job and you’re making public statements, you’re basically speaking to Trump,” Rogoff added.
Debt Pile-Up Makes Things Worse
With U.S. debt around 120% of GDP, the country faces growing fiscal challenges that could result in even higher borrowing costs.
Rogoff said the budget situation would have been difficult no matter who won the last election.
“The U.S. has budget problems that would have been bad under any president,” he said. “Federal Reserve independence is not as sacrosanct as people think.”
As America faces more competition in the global financial system and rising domestic obligations, Rogoff’s main takeaway is straightforward: the easy money era is over.
Households, businesses, and policymakers will need to adapt to a world where capital is no longer cheap.