Central banks will be "exceedingly low" on short-term interest rates as markets emerge from a liquidity trap, Pimco chief economist Paul McCulley said on Thursday.
"I don't think the world is upside down," McCulley said of the current macroeconomic climate. McCulley, once a prominent portfolio manager at Pimco and a noted Fed watcher, rejoined the firm this week as its chief economist.
"It's a brand new regime. We are calling it here the new neutral," McCulley said in a "Street Signs" interview. "I love the phrase, I have been writing about it for 10 years."
Investors should not fear any of the kind of catastrophic "Minsky moments" that fed the recent financial crisis, despite the reappearance of easy credit in the home mortgage markets, McCulley said.
McCulley is credited with inventing term "Minsky moment" to describe a sudden crash in asset values, usually following a period of extreme speculation using borrowed money. (Hyman Minsky was an economist whose theories on instability were considered radical in their day).
While he is not worried that easy monetary policy will bring about another catastrophic crash on par with the last one, he says investment managers should still keep their eyes peeled for trouble.