Powell may lay out carpet for new era of higher rates later this week
Investing.com -- President Jerome Powell is set to potentially deliver fresh clues on monetary policy later this week, but while many aren’t expecting the Fed chief's remarks to be laced with the warning of the “pain” from last year, there are worries that he may tee up the idea of steeper longer-term interest rates.
For the Fed, ‘seeing the job through’ likely resembles an economy achieving below-trend growth, and a pace of inflation that is clearly showing a sustainable downward path. Policymakers in June forecast a median estimate of the neutral rate of interest of 2.5%, implying a real rate of interest, or so-called r* or “r-star,”-- derived by subtracting the Fed’s 2% inflation – of 0.5%.
This real neutral rate of interest hasn’t changed since 2019, and following the strength in the post-Covid economy that is less interest-rate sensitive, some have been calling for a higher neutral rate to push policy into restrictive territory, helping to curb growth and inflation.
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