MINNEAPOLIS (Reuters) – Continued U.S. economic growth and a positive outlook have done nothing to raise the underlying neutral rate of interest, San Francisco Federal Reserve President John Williams said in remarks on Tuesday that highlight an intensifying debate at the central bank over how high rates might rise in its move to “normalize” monetary policy.
At issue are varying estimates of the neutral rate of interest, and whether current stronger growth may lift it, as Fed vice chair for financial supervision Randal Quarles and some others have recently suggested.
Williams - Vice - Chairmanship - Head - New
Williams, about to also assume a vice chairmanship as head of the New York Fed, said in remarks to the Economic Club of Minnesota that he thought such optimism was “misplaced,” and that the neutral rate remained mired at around 2.5 percent by long-term forces like an aging population and global demand for safe assets.
The neutral rate is a level of interest that is seen as neither encouraging nor discouraging economic decisions, and is consistent with both stable inflation and strong employment.
Fed - Benchmark - Rate - Percent - Rate
The Fed’s benchmark rate would approach 2.5 percent after just three more rate increases, perhaps even by the end of this year, forcing the Fed to acknowledge the decade-long era of “accommodative” policy had ended, recast its policy statement accordingly, and...
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