long - term consequences for short - term market interest rates and, hence, r *. i will also consider how these factors may be influencing r * ’ s value today and in the future. let me first explain why i believe the safety of u. s. treasury securities increased over the past 40 years. by this i am not referring to default risk, which has been and will be zero. by “ safer ” i mean greater stability in the real return from holding u. s. treasuries. i believe this occurred for two reasons. first, from 1980 to 2020 there was a significant decline in the level and volatility of u. s. inflation. second, the great moderation during this period meant economic performance in the united states was less volatile, which meant less variability in the monetary policy rate. this lowered the interest rate risk from holding treasuries. as a result, the opportunity to hold a defaultfree asset with less risk of inflation and economic volatility made u. s. treasuries more attractive. support for this proposition comes from looking at the term premium on 10 - year treasuries over the past 40 years, as is shown in figure 4. the term premium measures the compensation investors must receive to accept risk from holding treasuries. as you - 7can see, there is a clear secular decline in the term premium on 10 - year treasuries. i interpret this to mean that the inflation risk and real risk of holding treasury securities made them safer to hold as time went on. now let me turn to five factors that i believe played a role in causing the demand for safe, liquid assets to grow faster than the supply of these assets, pushing down treasury yields and r *. some of these factors are contributing to the downward trend in u. s. longer - term rates, while others affect global longer - term interest rates more broadly. the first factor is the liberalization and globalization of capital markets starting in the 1990 ’ s. this increased the global demand for safe liquid assets to investors around the world who previously did not have access to u. s. treasuries. financial and capital markets and trade around the world were liberalized, and information technology saw advances that aided the global movement of capital, which resulted in an explosion of cross - border finance. for example, the share of external financial claims and external financial liabilities as a share of annual global gross domestic product grew from around

buoyant domestic demand and a tight labour market pointing to strong underlying domestically - generated inflation, the market might have been left with the expectation that tighter policy had simply been deferred, and this might have had the perverse effect of putting further upward pressure on sterling. another possibility that the committee considered was foreign exchange intervention ; but there is no indication that market support for sterling at these levels is fragile and any intervention operation that failed would be damaging to the credibility of the committee and thus of the new uk monetary policy framework. these were the factors behind the mpc ’ s decision at the last meeting to raise rates : but it may well be that there is now an opportunity to wait and see for a period how the economy develops ; and this need not damage our prospects of meeting the inflation target ; and it might improve the chances of continued sustainable growth in output and employment, and, perhaps, of a return of sterling to a more realistic level. i would like to finish by thanking the cardiff business club and sue camper for providing me with the opportunity to speak to you tonight. i believe most of you know sue and the work she does as the bank ’ s agent in wales. the agents play a vital role as a channel of communication not only for the bank to explain more widely the monetary policy framework and the reasoning behind mpc decisions ; but also to hear the views of others on the economic conditions they are facing. and i am grateful, on behalf of the mpc, for the support you give her.