Larry Summers says markets are ‘excessively optimistic’ about inflation - Star
Former Treasury Secretary Summers (born 1954) added that the Fed is underestimating the long-term level of interest rates, known as the neutral rate, that will be necessary to keep prices from rising too quickly.
”My best guess is [the Fed] is badly wrong that the neutral interest rate is 2.5%,” he said.
“My guess is that the neutral rate is 4.5%.”
Fed officials raised their estimate of the neutral rate to 2.8% earlier this month.
Traders in the federal-funds futures market see a nearly 70% chance of more than one interest-rate cut before the end of 2025
The Fed’s benchmark interest rate is currently at 5.25% to 5.5%. According to Summers, that monetary policy is not very restrictive and investors shouldn’t expect interest rates to fall significantly from here.
MarketWatch 24 June 2024
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