Neutral no more? Fed officials foresee hiking US rates into restrictive territory, notes reveal
‘A substantial majority of participants expected that the year-end 2020 and 2021 federal funds rate would be above their estimates of the longer-run rate’
Federal Reserve officials stepped deeper into a debate over how high to push interest rates, as a majority favoured an eventual and temporary move above the level they deem neutral for the economy in the long run.
The clearest summary of policymakers’ views, unusually, appeared not in the minutes to the September 25-26 policy meeting, which were released Wednesday in Washington, but in the accompanying notes to officials’ most recent economic projections.
“A substantial majority of participants expected that the year-end 2020 and 2021 federal funds rate would be above their estimates of the longer-run rate,” according to the document.
Those long-run estimates typically reflect where officials believe interest rates will neither stimulate nor hold back the economy. In their most recent projections, officials’ median estimate for that neutral level was 3 per cent.
The committee was otherwise in broad agreement over continuing on the current, gradual path of rate increases. The record showed “all participants” backed the September 26 quarter-percentage point hike to a range of 2 per cent to 2.25 per cent.