Federal Reserve's Williams: Long-term economic trends in the United States support keeping neutral interest rates low
Federal Reserve's Williams stated that the long-term economic trend in the United States supports maintaining a low neutral interest rate, with the pre-pandemic long-term trend still intact. He hopes that the inflation rate can stabilize and return to the 2% target, and will further observe the economic situation from July to September. Policymakers predict that the neutral interest rate has risen from around 2.5% before the pandemic to about 2.8%. The core of this discussion is at what level interest rates may be maintained once the inflation rate rises to 2%. On July 30th to 31st, the Federal Reserve will hold a policy meeting
According to the financial news app Zhitong Finance, John Williams, President of the Federal Reserve Bank of New York, recently expressed his views, pointing out that the long-term trend of the decline in the neutral interest rate level before the outbreak of the epidemic still exists. He stated in a group discussion organized by the Central Reserve Bank of Peru: "My own Holston-Laubach-Williams model estimates the r-star (neutral interest rate) for the United States, Canada, and the Eurozone to be roughly the same as before the epidemic." This model aims to estimate the neutral interest rate that neither stimulates nor slows down economic growth.
Williams' statement indicates that the underlying trend supporting low interest rates before the epidemic is "still intact." He further explained that despite encouraging inflation data in recent months, he still hopes to see more data to ensure that the inflation rate stabilizes back to the Federal Reserve's target of 2%. He emphasized that officials will further observe the economic situation between July and September, when it is widely expected that policymakers may begin to adjust borrowing costs.
As the last member of the Federal Reserve officials to speak, Williams' remarks have sparked widespread discussions on the neutral interest rate. The core of this discussion is what level interest rates may maintain once the inflation rate rises to 2%. Federal Reserve officials will convene a policy meeting on July 30th and 31st, after which they will enter a blackout period.
Forecasts released by policymakers in June showed that they believe the neutral interest rate has risen from around 2.5% before the epidemic to approximately 2.8% (based on their median estimate). This change reflects market expectations for future interest rate trends and confidence in economic recovery