"The Era of Low Interest Rates is Over"... Diverging Economic Directions Between Monetary Tightening and Fiscal Expansion

In 2026, the global economy is showing complex aspects as the tightening stance of monetary policy and the expansionary trend of fiscal policy move in different directions. According to a three-party discussion video from the YouTube channel 'The Man Who Explains the Economy (Kim Kwang-seok TV)', the current economic situation has entered a new phase, departing from the era of low interest rates that had persisted since the Lehman Brothers crisis.

The AI Technology Revolution and the End of the Low-Interest-Rate Era

The panelists shared the view that the past era of low interest rates is coming to an end along with the emergence of new technology called AI. The participants in the video analyzed that in the process of gaining the productivity revolution brought by AI, the opportunity cost is being paid in the form of low interest rates. In particular, they explained that AI-related investments, such as the construction of large-scale data centers by hyperscalers and the increase in power demand, are appearing as a global phenomenon, and this growth is acting as a factor that pushes up prices and raises interest rates.

Furthermore, geopolitical instability and inflation issues lie at the background of the end of the low-interest-rate era. The situation where major countries, including the United States, the Eurozone, South Korea, and Japan, are implementing interest rate hikes or announcing additional hikes for their own reasons was mentioned as an indicator of the economic normalization process and the flow of tightening. The participants defined this not as voluntary tightening, but as an 'era of timely tightening' where inevitable factors are intertwined.

Diverging Monetary and Fiscal Policies, the Cause of High Government Bond Yields

The most characteristic variable of the 2026 economy is that the directions of monetary policy and fiscal policy do not coincide. During the pandemic period or the Russia-Ukraine War in 2022, monetary and fiscal policies had the same direction, being both accommodative or expansionary, but currently, these two axes are showing different movements. While central banks are taking a tightening stance by raising interest rates to catch inflation, the government's fiscal policy is showing a very expansionary appearance for the sake of the AI hegemony competition and other factors.

This policy mismatch was pointed out as a major cause for maintaining high government bond yields. The analysis suggests that in addition to the expectation of interest rate hikes due to monetary tightening, the massive issuance of government bonds worldwide has caused bond yields to remain at a high level. In particular, as the excess tax revenue generated from participating in the AI value chain serves as liquidity for fiscal execution, the power of fiscal policy is offsetting the tightening effect of monetary policy and affecting the overall economy.

International Oil Price Trends and Geopolitical Variables

Volatility in the energy market was also treated as a major economic variable. The video explained that after international oil prices peaked around March 2022, they showed a trend of declining before surging again due to the influence of wars in the Middle East in 2026. Citing the OECD Economic Outlook report, the possibility that oil prices might fall again was raised if supply recovers to an appropriate level while global crude oil demand is plummeting.

However, the use of strategic petroleum reserves in the United States, the difference in reserve scales with China, and geopolitical instability in the Middle East region were mentioned as factors hindering the stabilization of oil prices. In particular, geopolitical conflicts within the Middle East, such as the possibility of the UAE leaving OPEC, are raising concerns that the era of high oil prices may persist, and accordingly, it is forecasted that securing technologies for alternative energy and energy self-sufficiency will remain a continuous topic.