Former Treasury secretary Summers: Neutral Fed Rate ‘Much Higher’

Says economy may be re-accelerating

The neutral rate is the theoretical level for the Fed’s benchmark that neither stimulates nor restrains growth. 

Fed policymakers last month estimated it at around 2.6% — the median estimate of their forecasts. 

Summers reiterated his own view is that neutral is 4% or higher. That compares with the current target range of 5.25% to 5.5%.

“There’s a slight element of restriction, but only a slight one”

Summers: “There’s no way to judge what policy is without knowing what would be a neutral policy,”

Bloomberg 5 April 2024

What’s the Fed’s ‘Neutral’ Rate and Why Does It Matter?


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