This perspective is reinforced by the Fed’s projected long-run neutral rate of 2.6 percent and an inflation goal of 2 percent, resulting in a neutral rate of about 0.6 percent.
With current policies being 150-250 basis points more restrictive than this neutral rate, the discussion shifts from a strict focus on nominal rate levels to a more nuanced view of policy impact.
The debate over whether to raise rates seems less likely, as indicated by Joe Kalish, chief global macro strategist at Ned Davis Research.
He notes that a significant shift in inflation expectations would be required to consider such a move. Current consumer surveys and inflation-protected bond rates suggest rising but not runaway inflation expectations.
Further adjustments to the neutral rate forecast by the Fed, such as the recent increase from 2.5 percent to 2.6 percent, could influence future decisions, especially if inflation remains stubborn.
