In an essay titled “The Neutral Rate of Interest“, Dallas Fed President Robert Kaplan reiterated his stance that Fed should be “gradually and patiently raising the federal funds rate until we get into the range of a ‘neutral stance'”. And at that point, He would assess the economic outlook and a broad range of factors before deficit further actions.
Kaplan also noted his own estimate of the longer-run neutral rate is “modestly below the median of the estimates made by my colleagues”, that is 3.0%. And, his suggested rate path for 2019 is “also modestly below the 3 to 3.25 percent median of the ranges suggested by my fellow FOMC participants.”. His own base case for 2019 is to hike to 2.5-2.75% or “more likely”, 2.75 to 3%.
He also discussed a number of key issues with using neutral rate concept on monetary policy, and the challenges of its estimation. Worth a read here.
