“neutral” Fed policy rate 2.5% till around 3% — a tectonic shift. Really?
US Economy Won’t Be Immune to High Rates Forever
Consider the monumental shift in attitudes in recent months.
For the better part of a decade, market economists have generally believed that the longer-run “neutral” Fed policy rate — consistent with low inflation and sustainable growth — was around 2.5%, and that remained the case even after inflation surged in 2021 and 2022.
Once inflation had been beaten, economists assumed that policy rates would eventually “normalize” around that 2.5% level.
But in 2023, something snapped and economists’ median views started to drift up.
As of the latest survey of primary dealers conducted by the Federal Reserve Bank of New York, the median respondent now sees rates settling at around 3% — a tectonic shift in the world of central bank forecasting.
Market participants don’t just think rates will stay at their current extremes for longer than previously anticipated; they now also believe that rates may have to stay moderately high forever
— a shift that implies far-reaching consequences for housing affordability, corporate finance and the national debt.
The second key issue is the “lock-in effect.” During the pandemic, consumers and businesses alike locked in ultra-low fixed-rate borrowing costs, effectively shielding themselves from higher rates.
Jonathan Levin Bloomberg 29 maj 2024 at 19:05 CEST
Higher for Longer? Rates Could Be Higher Forever
Allison Schrager Bloomberg 14 maj 2024
Kommentarer