Governor’s notes from the 2025 Jackson Hole Symposium

The mountainous surroundings of the Jackson Hole valley, near Yellowstone National Park, plays host annually to the most closely followed central banking symposium in the world.  It is organised by the Kansas City Fed and was held on 21–23 August this year. Most of the world’s central bank governors attended. Academics from prestigious universities presented previously unpublished papers prepared specially for the symposium. What conclusions can be drawn for the Czech Republic?

CNB Governor Aleš Michl with Christopher Waller, member of the Board of Governors of the Federal Reserve System, at the Jackson Hole Symposium, USA, August 2025.

Let’s Get On with It is the title of the latest speech by Christopher Waller, with whom I was photographed at the Jackson Hole Symposium (Waller, 2025). In his speech, Christopher Waller calls for action – to lower interest rates in the USA. The key interest rate in the USA is now 4.375% (a range from 4.25% to 4.5%), while it is 3.5% in the Czech Republic. The differences in inflation outlooks are not significant, so it makes sense to lower short-term interest rates in the USA, even several times, as Waller argues.

The CNB has also gradually lowered rates, from 7% to 3.5%. This fine-tuning of monetary policy from one extreme towards a new normal is the right debate to be having. By contrast, a return to zero rates would be wrong. In the past, central banks – including the Czech National Bank – mistakenly kept rates extremely low, at zero, for a long time, and then were surprised when inflation arrived (the CNB even printed money in late 2016 and early 2017 – selling korunas and buying euros to weaken the koruna and generate inflation – see the table below).

But what might this new normal – the level of interest rates – actually look like? At this year’s Jackson Hole Symposium, I was struck by a paper with a general title but all the more interesting implications for the future path of long-term rates: The Race Between Asset Supply and Asset Demand (Auclert et al., 2025). The paper was presented at the conference by one of its authors, Ludwig Straub of Harvard University. It tells the story of how high interest rates may be in the coming decades – or, to put it differently, what the price of money will be. Long-term interest rates are affected, among other things, by the race between the supply of and demand for financial assets, especially government bonds.

The authors of The Race Between Asset Supply and Asset Demand focused mainly on US government bonds. They assume that supply is driven mostly by government borrowing, i.e. the issuance of government bonds. Demand, meanwhile, is affected by investor interest in purchasing these bonds. If that interest wanes, investors need to be enticed by higher yields.

US population ageing started in the 1950s. Together with growing foreign investor interest in US government bonds and a decline in productivity growth, this led to an increase in demand for assets. Asset supply then fell in the 1970s (see the chart below), but subsequently began to rise. Demand has been growing steadily since the 1980s. Overall, demand for assets has prevailed, causing interest rates to fall. 

Source: Auclert et al. (2025)
(Open Chart in new window.)

Source: Auclert et al. (2025)
(Open Chart in new window.)

According to the authors, this trend will reverse in the future. While the direction of some drivers of supply and demand is unclear, one thing is certain: the population will continue to age. Birth rates have long been declining. And even if they stabilise, the share of the population over 65 will increase in the coming decades. This will affect both the demand for assets and their supply.

Source: Auclert et al. (2025)
(Open Chart in new window.)

Population ageing means that the rising demand for assets seen in recent decades will continue. Older, wealthier individuals will have more savings and thus greater demand for investments. Ageing will, however, also affect the supply of assets through government spending. An ageing population will require higher social and healthcare expenditures, which are set to increase significantly. Without substantial fiscal consolidation, rising deficits will lead to a sharp increase in debt and therefore in the supply of assets. In addition, this increase will accelerate over the course of this century.

More specifically, even if birth rates stop declining, the share of the population over 65 will continue to rise. According to the authors, ageing, rising incomes and increased saving will push up demand for assets by an estimated up to 300% of GDP by 2100. This would, ceteris paribus, continue to put downward pressure on interest rates. However, ageing will significantly increase social security and healthcare costs (Social Security and Medicare) – from around 11% of GDP today to almost 20% of GDP by 2100. Without major fiscal reform, this will mean rising deficits and a sharp increase in debt. The authors estimate that without consolidation, government debt could rise by an estimated 500% of GDP, and with it the supply of bonds. 

Until fiscal consolidation takes place, there will be a race between growing demand for assets from an older and wealthier population on the one hand, and increasing debt issuance needed to finance rising government expenditure on the other. Added to this will be further government spending on defence and other areas. This is another reason why, without fundamental fiscal consolidation, the supply of debt will ultimately exceed the demand for bonds. 

Source: Auclert et al. (2025)
(Open Chart in new window.)

A flood of bonds onto the market means that governments will have to offer higher interest rates/yields as supply increases. Central banks will also keep their interest rates higher than before to fight inflation caused by government spending and government debt. The result will be higher interest rates in the long term, i.e. the price of money will be higher than we were used to in the ten to fifteen years before Covid. 

These trends are also relevant for the Czech Republic. The government has no plans for a long-term balanced budget. The Czech Republic, like the USA, is ageing. In addition, the country went through a period of money printing in the past aimed at generating inflation (see the table Money printing in the Czech Republic by the Czech National Bank in late 2016 and early 2017), zero interest rates, 19 years of negative real rates and subsequent high inflation. This will need to be countered by relatively higher rates than before. That is the new normal. In other words, Let’s Get On with It, as Christopher Waller (2025) writes. But let’s not go back to the days when rates were zero and the CNB was selling korunas and buying euros in order to weaken the koruna and generate inflation. Yes, you read that right – to generate inflation. What a misguided policy that was, and the CNB must never repeat such a mistake again.

Table 1 – Money printing in the Czech Republic by the Czech National Bank in late 2016 and early 2017
The CNB sold korunas and bought euros in order to weaken the koruna and generate inflation

Note: Excess liquidity is defined as the total volume of liquidity absorbed through repo operations and other overnight sterilisation instruments. The percentage increase is calculated relative to the initial value in September 2016.
Source: CNB ARAD

Table 2 – Real interest rates in the Czech Republic
negative values = supporting inflation; positive values = fighting inflation

Note: Real rate = repo rate − financial market inflation expectations (12-month horizon), in %.
Source: CNB ARAD

P.S.:
Just like athletes exchange jerseys after a big game, Carlos Garriga, First Vice President of the Federal Reserve Bank of St. Louis, and I exchanged hoodies after this year’s Jackson Hole conference. He gave me a FRED hoodie – a true classic. FRED (Federal Reserve Economic Data), launched in 1991, made U.S. economic time series easily accessible and visualized. It has since become an essential tool for economists, analysts, students, and policymakers worldwide.

In return, I gave him an ARAD hoodie – our Czech take on open data. ARAD (Automated Time Series) is the ČNB’s time series database. We relaunched it in 2023 to bring better usability, transparency, and open access to key macroeconomic and financial data from the Czech economy.

Two central banks, two data platforms, two hoodies – one shared belief: economic transparency matters.

https://www.cnb.cz/arad/#/en/home
https://fred.stlouisfed.org

References

Auclert, A., Malmberg, H., Rognlie, M., & Straub, L. (2025, August). The race between asset supply and asset demand. Paper presented at the Federal Reserve Bank of Kansas City Economic Policy Symposium, Jackson Hole, USA.
Presentation accompanying the article: https://www.kansascityfed.org/documents/11207/straub_projector.pdf

Michl, A. (2023a). Inflation: The road to the target. University of Economics and Business, Prague. 15 May 2023.

Michl, A. (2023b). The road to the target II. CBA Assembly of Members. Czech Banking Association, Prague. 15 June 2023.

Michl, A. (2023c). The road to the target III. CNB Discussion Forum 2023. Tomas Bata University, Zlín. 17 October 2023

Michl, A. (2024a). The target. CNB Discussion Forum, 2024. University of Pardubice, Pardubice. 23 April 2024.

Michl, A. (2024b). Taming inflation from 18 to 2% and paving the way for ESG financing. Central Banking Summer Meetings, London. 13 June 2024.

Michl, A. (2024c). Governor’s remarks at the 2024 Mexico City conference. Governor and Deputy Governors Panel Discussion, Central Banking Autumn Meetings, Mexico City. 14 November 2024.

Waller, C. J. (2025). Let’s get on with it. Economic Club of Miami, Miami. 28 August 2025.