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In the past few years, I have highlighted the increase in productivity growth and the possibility that it could be a lasting phenomenon and a great boon to the economy. The implications for interest rates, though, remain an active area of debate. The economics suggest that the answer depends heavily on whether the productivity growth happens unexpectedly or is anticipated to be coming in the future. Some view the lesson of the 1990s in the United States to be that faster productivity growth can mean lower rates because it lowers inflation. At the time, then-U.S. Federal Reserve Chairman Alan Greenspan argued that productivity increases had to be behind the aggregate profit, employment, and inflation numbers, even though productivity growth itself had not yet materialized in the data. It was unexpected—and in that circumstance, the fundamentals call for lower rates. But if people expect an increase in productivity coming in the future, it can change their behavior today, making the rate picture more complicated. An increase in expected future income is just like a wealth increase today: It can lead to increased spending and potentially overheat the economy before the productivity boom has actually arrived. In that case, rates would likely need to rise. So it's critical we look out for activity driven by assumptions of future growth: stock market wealth effects on consumer spending, higher capital investment driven by market valuations, and so on. The bigger the hype about future productivity, the more rates may need to rise to prevent overheating. This could affect other countries, too, as the productivity gains or expected gains spread with the new technology across borders. And, importantly, facing a supply shock in the near term—whether from oil prices, disruptions to the supply chain, or other factors—makes the problem worse. Supply shocks reduce potential and limit growth for the economy, but they also make the problem of inflation from anticipated future productivity growth more extreme. According to Fed’s Goolsbee, the more markets expect productivity gains, the more monetary policy may need to tighten.