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MNI: Wary Fed Will Test Neutral Rate From Below -- Ex-Staffers

(MNI) Washington
WASHINGTON (MNI)

Fed isn't ready to say neutral is above long-run estimates, ex-staff say.

Federal Reserve officials will likely turn cautious as interest rates approach a level they consider neutral, potentially slowing the pace of rate hikes because they fear shocking the economy into recession if financial conditions tighten more quickly than anticipated, former central bank staffers told MNI.

Moreover, ex-staff said the Fed will target a neutral policy rate using a lower trend measure despite recent energy and commodity price spikes, presuming underlying inflation pressures are still under control because much of the recent inflation is driven by short-term supply shocks.

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Federal Reserve officials will likely turn cautious as interest rates approach a level they consider neutral, potentially slowing the pace of rate hikes because they fear shocking the economy into recession if financial conditions tighten more quickly than anticipated, former central bank staffers told MNI.

Moreover, ex-staff said the Fed will target a neutral policy rate using a lower trend measure despite recent energy and commodity price spikes, presuming underlying inflation pressures are still under control because much of the recent inflation is driven by short-term supply shocks.

Keep reading...Show less