The Fed Cuts Interest Rates: ‘Monetary Policy Is Officially Easy Again’

Yuval Rosenberg

The Federal Reserve cut interest rates again on Wednesday, lowering its benchmark overnight lending rate to a range of 1.75% to 2.00%, as was widely expected.

With the cut, monetary policy is once again easy, says Torsten Slok, chief economist at Deutsche Bank Securities — meaning that the Fed funds rate is below the central bank’s estimate of the neutral rate:

“It is quite striking how short the period was with tight monetary policy relative to the long period of easy monetary policy. One explanation is that it simply took a long time for the economy to recover after the financial crisis and just when we arrived at neutral, the economy got hit by a trade war. Another explanation is that our estimate of the neutral rate is completely wrong, maybe interest rates should be lower because of unfavorable demographics, higher overall debt levels, and global central bank QE. The only development which can stop these forces from dragging down rates is inflation, and there are simply no signs that this will be a problem anytime soon.”

Like what you're reading? Sign up for our free newsletter.