The threshold interest rate above which the central bank triggers a problem of financial stability
I cannot tell if Jay Powell, the Federal Reserve chairman, will heroically win his fight against inflation in 2023, or ignominiously /HUMILIATING, DEGRADING/ lose it. In a conversation with my hirsute friend David Zervos of Jefferies LLC, I detected mounting excitement that Powell might pull off the mythical soft landing: a rapid decline in inflation without a recession. But on the same day I also discussed the issue with former Treasury Secretary Larry Summers, who dismissed a soft landing as the economic equivalent of Captain Chesley “Sully” Sullenberger landing US Airways Flight 1549 on the Hudson River after bird strikes took out both engines. Another relevant economics paper is Akinci et al. on “the financial stability interest rate” (which they call r**, not to be confused with r*, the neutral interest rate) — the threshold interest rate above which the central bank triggers a problem of financial stability. “Persistently low real rates induce an increase in financial vulner...