Source: Jin10 Data
The chairman of the New York Fed stated that policy makers should not overly rely on estimates of neutral interest rates.
New York Fed Chair Williams delved into the research of neutral interest rates, and refuted comments suggesting that neutral interest rates have risen since the epidemic.
In the speech prepared for the group discussion at the European Central Bank Forum in Sintra on Wednesday, Williams cited recent estimates showing that the neutral interest rates in the United States and the euro area are similar to those before the outbreak of the COVID-19 pandemic.
He said, "Although both of these sets of estimates show some short-term fluctuations, the main common feature is that the neutral interest rates have continued to decline by two percentage points over the past 30 years, and our estimates for Canada are also consistent with this. Therefore, according to these estimates, the low neutral interest rate environment will continue. "
Williams reiterated his view shared in May that there is "no sign" in the data so far this year that neutral interest rates have risen.
The neutral interest rate, a short-term interest rate under full employment and stable inflation, is the core of monetary policy, but it cannot be directly observed. Federal Reserve officials aim to raise the policy rate above the neutral rate to cool the economy and counteract inflation.
The resilience of the US economy has sparked discussions about whether the neutral interest rate in the country will rise after the pandemic, and whether Fed monetary policy is less restrictive than previously thought.
According to the median forecast for June, Fed officials raised their long-term rate estimate to 2.8%, up from 2.6% at the March meeting. This increase followed a slight uptick in March. The minutes of the June meeting will be released at 2:00 a.m. on Thursday.
Williams said in the discussion that over time, officials will understand whether artificial intelligence will have a meaningful boost to productivity, or whether its impact will be more modest. Faster productivity growth could lead to higher neutral interest rates amid increased demand for capital. "The high degree of uncertainty surrounding neutral interest rates means that estimates of neutral interest rates should not be overly relied upon in determining appropriate monetary policy settings at a given point in time," he said.
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Editor / jayden