Natural rate may be 1.30%, study says
A study released from the Cleveland Fed argues something markets have long known: Even if the Fed hikes, it won't by much.
The Fed has slowly shifted down its assumptions about the long-run Fed funds natural rate. The bulk of the FOMC now sees it around 3.3% compared to 4.25% in Jan 2012.
Subtracting the 2% inflation objective puts the natural interest rate at 1.3%.
The study shows that other measures of the natural rate have fallen by a similar amount.
"Other things equal, this decline would suggest that the post-liftoff Fed may find it appropriate to raise the funds rate more slowly toward historical levels than had the natural rate stayed constant," the study says.