Buzzwords: Neutral Rate

Published on19 SEP 2016

Goldman Sachs Research's David Mericle discusses the “Neutral Rate” of interest, or the level at which the Fed funds rate would keep the economy at full employment with stable inflation. Estimates of the rate have dropped in recent years as growth has been unspectacular and inflation has remained subdued despite very low policy rates, and economists disagree over whether the decline has been caused by temporary factors or more structural changes. David explains this debate and its implications. 

While the neutral rate is inherently unobservable and a somewhat abstract economic concept, it has profound implications for monetary policy.

- David Mericle