What’s the Fed’s ‘Neutral’ Rate? Why Does It Matter?: QuickTake

Central banks seek to manage economies by setting interest rates at levels that encourage or discourage activities such as car purchases and construction projects. These efforts revolve around a number that’s right in the middle — the rate that does nothing at all, also known as the neutral interest rate. It’s an important guidepost right now because monetary policymakers across advanced economies are cutting rates as the inflationary years of the pandemic period draw to a close, but they’re doing it with some caution as new inflation risks simultaneously emerge. That means the debate over the neutral rate will influence ...