The Outlook for Policy Rates
Almost a year ago, in an eight-minute mic drop speech at the Kansas City Fed’s Jackson Hole symposium, Fed Chair Jay Powell announced a major shift in the Fed’s monetary policy strategy. When the Federal Open Market Committee (FOMC) began hiking rates in March 2022, various policymakers said that the neutral rate of interest was 2½%, which was the median assessment of committee participants in the longer term, and the strategy was to get back to this level and then assess from there. The problem with this approach was that this was the Fed’s assessment of neutral when inflation was running at the 2% target rate and it was flawed reasoning to use this figure as neutral when assessing what level of interest rates would be needed to get inflation down to 2%.
Powell’s switch was to argue that the Fed needed to establish positive real interest rates across the yield spectrum. Further amplification provided at post-FOMC meeting press conferences and in speeches was that the Fed was seeking to get the policy rate to a “sufficiently restrictive” level and then hold it there for a period of time to exert continued downward pressure on inflation. As the Fed heads into its next policy meeting on July 26, where does policy stand on this sufficientlyrestrictive metric?
- Source RDQ Economics, Federal Reserve Board, Bureau of Labor Statistics
The Rithm Capital Market Update is provided in partnership with RDQ Economics. For any further questions about Rithm Capital or this market update, please reach out to email@example.com. This update is being provided for informational purposes only. It may not be reproduced or distributed. No representation is made regarding the accuracy or completeness of the information contained herein. Nothing contained herein constitutes investment advice nor an offer of securities.