, Columnist
Fed’s Debate About ‘Neutral’ Is Mostly an Exercise
The central bank’s tea leaves suggest that some policymakers think the rate is on the rise. But the most influential voices probably won’t be swayed.
Fed Chair Jerome Powell will be concentrating on data, not models.
Photographer: Chip Somodevilla/Getty Images
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The Federal Reserve’s internal debate about the “neutral” real rate of interest is heating up.
The neutral rate, or r-star, is the inflation-adjusted policy stance that neither stimulates nor restrains the economy. The rate is impossible to observe in real time, yet policymakers have been subtly revising up their estimates of what they think it might be. And some observers are making sensational claims about the significance of the moves.