According to data released by the New York Fed on Friday, the neutral interest rate remained at a relatively low level in the first quarter of this year. This indicates that the low interest rate world may still not be far away. The importance of neutral interest rates to central bank policy makers has been up and down, but its relative stability contrasts sharply with the expectations of policy makers that the era of ultra-low interest rates before the pandemic may be over.

As part of the latest quarterly forecast, Fed officials raised their estimate for the longer-run federal funds rate for a second consecutive time on Wednesday. Last December's estimate was 2.5%, rising to 2.6% in March and further to 2.8% this week. This means that Fed policy makers' views on neutral interest rates are rising.

Fed Chairman Powell warned not to over-interpret the upward revision of the Fed's longer-term rate forecasts at the news conference after the rate decision, pointing out that neutral interest rates are "actually a theoretical concept that cannot be directly observed." Powell said that expectations for neutral interest rates could not "get you to where you need to be when you're thinking about what's an appropriate policy in the near term." However, Powell acknowledged that longer-term interest rate forecasts do point to an evolution. He said: "People are starting to think that neutral interest rates are unlikely to fall to pre-pandemic levels. But according to recent history, this is very low."

New York Fed President Williams also believes that neutral interest rates are not particularly useful in formulating short-term tactical decisions on interest rates. But he said last month: "I think the factors that have kept rates low over the past decade or so are still at work."

Despite the Fed raising rates by 525 basis points since 2022, the US economy has not slowed down as much as many economists and policy makers expected. This momentum raises doubts as to whether rates are high enough to bring inflation back under control. According to public comments, Fed officials do agree that monetary policy is restrictive. At the same time, a report recently released by the Cleveland Fed states that a range of monetary policy rules indicate that the current level of 5.25% to 5.5% for the federal funds rate is more restrictive than the suggested level of around 5% for these rules.