Navigating interest rates by the North Star

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Macro and Market Perspectives

We believe the neutral interest rate can help guide the overall direction of monetary policy. It therefore also impacts asset valuations. Yet traditional models only focus on the long-term neutral rate, which can be buffeted by short-term financial forces. We add the impact of financial cycles when estimating neutral rates and find that the Federal Reserve has reason to keep tightening policy in line with its own rate projections – above market expectations – to get to a neutral policy stance by the end of 2019.