Breitbart Business Digest: The Economy Is Not Being Throttled by High Interest Rates

—sometimes called “r-star” or r* by economists—a celestial body which is supposed to demarcate the boundary between economic stimulation and restraint.We can glean the Fed’s view of the neutral rate by looking at the projections of its officials for the longer run federal funds rate. A decade ago, showed that the median forecast of the longer run fed funds rate was four percent.

. There it has hovered, dipping only once and never climbing, for nearly five years. This is extraordinary given the volatility of growth and inflation over this period. It suggests that 2.5 percent has become something of a fixed point in the turning world. . The Fed’s current target range of 5.25 percent to 5.50 percent is 275 to 300 basis points above the neutral rate. To put it differently, the Fed professes to believe that the fed funds rate should, over the long run, be 50 basis points over the inflation rate to be neutral. In January, the top of the range was more than 300 points above the realized 12-month increase in the personal consumption expenditure price index the Fed uses to track inflation.

Federal Reserve Board Chairman Jerome Powell speaks during a news conference on September 20, 2023, in Washington, DC. Monday that it expects the economy to grow 2.4 percent this year, with average payroll gains of 175,000, and a year-end unemployment rate of 3.8 percent.This is causing some to reconsider the Fed’s venerated “neutral” rate, that economic North Star, guiding the ship of policy through turbulent waters.

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