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U.S. Fed Chair Janet Yellen testifies before Congress in November 2016

Fed seeks cover in ‘natural’ interest rate

  • The U.S. economy is in good shape and markets expect monetary tightening
  • Under such conditions, the Fed’s focus on the gap between natural and market interest rates is puzzling
  • One purpose may be to deflect pressure from the Trump administration
  • The Fed may be signaling that it will not support Keynesian policies or a cheap dollar

In the summer of 2016, commentators began predicting that monetary policy in the United States would no longer aim to avoid deflation and boost growth, but instead would try to keep market interest rates close to what economists call the “natural rate of interest.” This objective was widely reported in the media and never denied by the U.S. Federal Reserve. Indeed, senior officials such as Vice Chairman Stanley Fischer have publicly expressed concern that structural changes in the economy may have caused a sustained reduction in the natural interest rate.

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Professor Enrico Colombatto
If the Fed really wanted to ensure that market and natural interest rates were the same, the obvious course would be to give up monetary policy altogether
read more about it in the report
What's inside
  • The U.S. economy is in good shape and markets expect monetary tightening
  • Under such conditions, the Fed’s focus on the gap between natural and market interest rates is puzzling
  • One purpose may be to deflect pressure from the Trump administration
  • The Fed may be signaling that it will not support Keynesian policies or a cheap dollar
Who will benefit?
  • Report is targeted to the decision makers in cross country manufacturing – suppliers, manufacturers, logistics.
  • Also considered useful for the administrative university facilities, to better understand the possibe effects of current decisions.
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