What Are ‘Neutral’ Rates?

In theory, the neutral interest rate — or, as it’s usually written down in economic models, r*, pronounced “r-star” — is the rate at which monetary policy is neither stimulating nor restricting economic growth. 


How does the Fed know what the neutral rate is?

It doesn’t know for sure, but it has estimates.

 “Honestly, we don’t know” where the neutral rate is, Fed Chair Jerome Powell told lawmakers in March.

Whether a 2.5% federal funds rate can be considered neutral or too low has led to some spirited debate. 

https://www.bloomberg.com/news/articles/2022-07-29/summers-says-powell-s-call-on-neutral-fed-rate-indefensible


Bloomberg 18 juli 2023  Updated on 25 augusti 2023 

https://www.bloomberg.com/news/articles/2023-07-18/-neutral-and-terminal-interest-rates-explained


Desperately Seeking Neutral

https://englundmacro.blogspot.com/2024/02/desperately-seeking-neutral.html



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