How high will interest rates go?

Equilibrium interest rates in advanced economies are probably still very low. However, there is still a lot of uncertainty about how far above this equilibrium interest rates will have to go in the near-term to quash inflation. Even if we are right in thinking that there is no need for a repeat of the early 1980s “Volcker shock” in order to bring down inflation, we are still heading for the most aggressive tightening cycle in decades. (This is an updated version of the Focus originally sent on 16 February 2022.)