The idea of a “neutral” or “natural” rate of interest

Beyond 2028, the central bank expects inflation to be back on target at 2% with the federal funds rate at 3%.

So, the Fed thinks the neutral policy rate, in due course, will be 3% in nominal terms, 

or 1% after adjusting for inflation.

Fed Chair Jerome Powell says that the current rate is “modestly restrictive.” 

He’ll keep saying the same if the Fed (as expected) cuts again later this month and then again in December, as long as inflation is still above target. 

Given all the complications and uncertainties, he’s unlikely ever to tell investors what they would love to know: how many basis points above the here-and-now neutral rate he believes the policy rate to be.

An excellent new book by my colleagues at Bloomberg Economics, The Price of Money,

https://www.amazon.com/Price-Money-Present-Natural-Interest/dp/0197800912/

surveys the research and concludes that the real natural rate for US 10-year government debt fell from nearly 5% in 1970 to 1.7% in 2012.

Clive Crook Bloomberg October 21, 2025 

https://www.bloomberg.com/opinion/articles/2025-10-21/natural-rate-of-interest-foretells-america-s-fiscal-doom

Powell in 2023 “As is often the case, we are navigating by the stars under cloudy skies.” 

In practice, policymakers try to feel their way to neutral by moving slowly.

https://englundmacro.blogspot.com/2024/08/feds-ultimate-destination.html