The pandemic has spurred profound changes in the global economy like a tight labor market and elevated inflation that policymakers are only beginning to understand. But one result is clear: The days of historically low interest rates are over. Now, policymakers are wrestling with the question of ... READ MORE >
natural rate of interest
Fed policy and the natural rate of interest—a delicate balancing act
The long-run trend in U.S. economic growth has been in decline ever since the 1980s when the Volcker Federal Reserve put the clamps on inflation, leading it to fall to below 2% per year on average We estimate that the real natural rate of interest is 0.5%, which implies a terminal rate of 2.5%. Given ... READ MORE >
Monetary and fiscal policy in a changing economy: Why the natural rate of interest is key to Fed policy
This is the third of four articles examining monetary and fiscal policy and the Federal Reserve’s response to the most significant issues of today’s economy. The first article examines the Fed’s challenge in meeting its mandate for full employment. The second looks at the Fed’s other mandate, for price ... READ MORE >