Bloomberg News reports that President Mary Daly of the Federal Reserve Bank of San Francisco stated that neutral interest rates might be higher than before the pre-pandemic levels. This might happen, although the rates would remain lower than seemingly indefinitely.
US Economy
In the wake of the aggressive rate hike campaign of the Federal Reserve, the US economy has manifested tremendous resilience. Due to this, the target range for the benchmark interest rate jumped to 5.55% from 5.25%. It was almost close to zero in less than 24 months.
The resilience displayed has prompted speculation about the neutral rate for the economy. The Fed officials have anticipated 2.5% since before the pandemic, which might rise further. Currently, the central bank is putting in efforts to decide if it will be required to increase the rate again in 2023 after keeping the benchmark the same at the last policy meeting in September.
Daly does not vote related to rate decisions. This year, he is among those Fed officials who have signaled that due to stringent financial conditions due to a recent surge in the US Treasury yields, the requirement for more rate hikes. The yields on the 10-year Treasury securities have increased by about 25 basis points since the meeting that was held in September.
What about the Futures Market?
The futures markets indicate a less-than-20% chance of another quarter-point surge when the Fed officials plan to meet between October 31 and November 1.
Bloomberg News reports that Daly said Tuesday that 5% will not be the new neutral. There is no evidence that a new neutral will be decided upon. This is the policy rate that is trying to combat high inflation. He revealed the same while talking at one of Chicago’s Town Hall events organized by the Chicago Council on Global Affairs.
