Omnigence’s latest research paper, Fiscal Dominance: Predicting Negative Real Rates, examines the conditions associated with negative real interest rates across the G7 and Australia from 1950 to 2026.
The research finds that government debt is the most reliable historical indicator. When public debt exceeded 120% of GDP, real policy rates were negative in 63% of country-years, compared with 23% when debt was below 60%. The paper also finds that central banks have historically raised policy rates less in response to inflation when government debt is high.
The analysis considers other factors, including fiscal deficits, private credit, starting interest rates and the relationship between interest rates and economic growth. Applying its models to 2026 conditions, the paper estimates that negative real policy rates may occur more often than the historical average in the years ahead. These estimates describe broad regime patterns and are not forecasts of any one year’s inflation or interest rates.