CPI, “Core” CPI and the Neutral Rate of Interest

 


Another question for the Fed is where it wants to end up. 

In an ideal world central bankers would guide a full-employment, stable-inflation economy to what is known as the neutral rate of interest, the level at which monetary policy is neither expansionary nor contractionary. 

In reality, although there is no way of observing the neutral rate the Fed still tries to aim for it, with its policymakers writing down their estimates every quarter. 

Since 2019 their median projection has, in real terms, been 0.5% (ie, a Fed-funds rate of 2.5% and a pce inflation rate of 2%).

Fed’s new median projection for rates in the long run shifted up to 2.6%, implying a real neutral rate of 0.6%.

The Economist 20 March 2024 



Kommentar RE: Jag tycker att en ekonomi borde palla med mer än 0,6 procent realränta.



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