The higher post-crisis cost of financial intermediation, increased risk aversion, higher precautionary saving and the decline in the US economy's potential growth rate mean that the neutral real fed funds rate is probably now close to 1%. Assuming that inflation averages 2%, that puts the neutral nominal fed funds rate at 3%, well below the Fed's own 3.75% estimate.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services