The economist Tom Lawler had an interesting article in the Calculated Risk Newsletter on R* -- the Neutral Interest Rate.
Basically, if one looks at the average best guesses for the current neutral real rate of interest, a 25 basis point cut in target federal funds rate range, it would be approximately close to a neutral nominal policy rate.
This would leave little room to tolerate any future increase in inflation without requiring an increase in the federal funds rate range.
A 25 basis point cut has been baked in the market for this December meeting which would make the federal funds target rate range 3.50-3.75%. Personally, I would vote to hold for more data as tariffs seep into prices, but the 25 basis point cut is very probable.
Here is the article at Calculated Risk Newsletter.
Posts
