Policy makers differ on what the neutral rate - the rate that neither restricts nor spurs economic growth
“I doubt that anyone can say with confidence where neutral is,” said Allianz SE chief economic adviser Mohamed El-Erian.
That increases the risk that the Fed will make a policy mistake, either by raising rates too high and pushing the U.S. into recession or by not increasing them enough and allowing elevated inflation to become endemic.
In his first speech at the Fed’s annual Jackson Hole conference in 2018, Powell highlighted the uncertainties surrounding such economic concepts as R star, or the neutral rate, saying they are imprecise and subject to revision.
“It’s a little mysterious about what’s going on” in financial markets, Kohn said. Financial conditions have tightened since the Fed pivoted in a hawkish direction, but not by a lot.
Yields on Treasury securities have risen, yet real, inflation adjusted rates are still negative.
Stock prices have fallen, but are not that far off record highs.
Bloomberg 3 April 2022
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