- The Federal Reserve is flying blind as it tries to bring down inflation without breaking the financial system or crashing the US into a recession.
- R* — pronounced “r-star” – is the inflation-adjusted short-term interest rate that’s neutral for the economy.
- Two closely watched estimates of the neutral rate have been suspended in November 2020 in recognition of pandemic-era difficulties.
- Some experts argue that the neutral rate has been pushed up by a percentage point or more due to changes in the economy and economic policy.
- At least part of the decline in R* following the financial crisis was due to forces that were peculiar to that period and aren’t applicable now.
Fed Flies Blind on Monetary Policy With Rising Risk of a 6% Rate
The Federal Reserve is flying blind as it tries to bring down inflation without breaking the financial system or crashing the US into a recession.
Rich Miller
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