Kitco News collects and features the top financial, economic and geopolitical news from around the world. Kitco's aggregated sources include some of the top newswires in the world including the Association Press, Canadian Press, Japanese Economic Newswire, and United Press International.
Sept 5 - The New York Federal Reserve said on Tuesday an interest rate reckoned to be neutral in its impact on the economy continued a downward trend in the second quarter, which suggests that at some point the low interest rate world that prevailed ahead of the coronavirus pandemic could return.
R-Star seeks to capture the rate that imparts neither stimulus nor restraint to the economy. Analysts typically translate that rate into a real-world setting by adding R-Star to the Fed’s 2% inflation target. The current reading suggests a federal funds rate of around 2.5% would represent a neutral setting.
Low R-Star settings have buttressed the views of some central bankers like New York Fed leader John Williams that once the Fed’s inflation battle has run its course short-term interest rates could again move back toward low levels. But there’s still a lot of uncertainty about the outlook, and at his speech at the end of last month in Jackson Hole, Wyoming, Fed Chair Jerome Powell acknowledged as much, saying “we are navigating by the stars under cloudy skies.” What’s more, R-Star estimates are based on assumptions about the economy, and some have questioned whether a variable based on guesswork has much useful to say about the neutral level of rates.
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