Jobs Surge Reignite Fed Debate How Restrictive Rates Are
Those numbers are “reopening the door a little bit wider on the debate over whether or not policy is indeed as restrictive as the Fed thinks it is,” BlackRock's Jeffrey Rosenberg said on Bloomberg Television.
At the heart of the debate is the somewhat arcane concept of the neutral rate — the level at which policy would neither stimulate nor restrain the economy.
To fight inflation, the Fed has aimed to raise rates well north of neutral.
But if the Fed’s estimate of neutral is too low, the policy rate — even at nearly 5.5% — isn’t doing as much work as officials thought.
That would at least force policymakers to rethink how long it will take to bring inflation back to their 2% target.
It might even make them consider whether additional rate increases might be necessary.
“Everyone is rethinking that dynamic” on what is the long-term neutral rate,” Bostic told reporters on May 21 in comments that likely remain accurate.
“The jury is still out. We are going to dig into this as we get deeper into this year.”
Bloomberg 7 June 2024
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