"New Fed Communications Agency": Under the "dual high" situation, the era of "ultra-low interest rates" in the United States has come to an end.

On Sunday local time, Nick Timiraos, a Wall Street Journal reporter known as the "mouthpiece of the Federal Reserve" and referred to as the "new Federal Reserve news agency," wrote that even if inflation returns to the Fed's 2% target in the coming years, interest rates may not return to the ultra-low levels seen before 2020, given the ongoing resilience of the economy and the expanding government deficit.

The problem lies in the so-called neutral interest rate. Generally speaking, if borrowing and spending are strong and inflationary pressures rise, the neutral rate must be higher than the current rate. If borrowing and spending are weak and inflation recedes, the neutral rate must be lower. Since early 2022, soaring inflation has led the Fed to raise rates well above the neutral level.

Timiraos suggests that as inflation has now declined but economic activity remains robust, estimates of the neutral rate may become more important in the coming months. If the neutral rate rises, it may be necessary to raise short-term rates or postpone rate cuts as inflation declines. It may also keep long-term bond yields, which determine mortgage and corporate debt rates, at higher levels for a longer period of time.

By 2019, the median rate expectation had dropped from 4.25% in 2012 to 2.5%. After deducting a 2% inflation rate, the actual neutral rate was 0.5%. As of June this year, the indicator remained at 0.5%.

While the median has not changed, the forecasts of some officials have been steadily rising. In June, out of the 17 FOMC members, 7 predicted that the actual neutral rate would be higher than 0.5%, while only 3 predicted it would be lower. A year ago, there were eight predictions below 0.5% and two above.

Timiraos explains that despite the Fed raising rates to the highest level in 22 years, the economy still unexpectedly shows resilience, and analysts expect growth in the third quarter to easily exceed 2%. This suggests that the current interest rate levels of 5.25% and 5.5% do not impose significant constraints on the economy.

"In concept, if the economy is operating above the 5.25% interest rate level, then to me, this suggests that the neutral rate may be higher than we imagined," said Tom Barkin, President of the Richmond Fed. He also stated that it is still too early to draw any definitive conclusions.

Timiraos also writes that factors such as the expanding government deficit and investments in clean energy and artificial intelligence could push up the neutral rate. Joseph Davis, Chief Global Economist at Vanguard, the world's largest mutual fund company, estimates that due to increasing public debt, the actual neutral rate has risen to 1.5%.

The debate over the neutral rate is far from over.

In April, the International Monetary Fund predicted that due to aging population and weak productivity growth, the future real neutral rate in the United States will remain below 1% for the next few decades. Williams expressed during the recent Federal Reserve meeting that he does not rule out the possibility of raising the neutral rate due to unexpected circumstances. Federal Reserve Chairman Powell has warned against formulating policies based on "unobservable estimates" such as the neutral interest rate.