October 30, 2015

IT'S A DEFLATIONARY EPOCH:

Measuring the natural rate of interest redux (Thomas Laubach and John Williams, 10/30/15, Brookings)

The equilibrium real interest rate--the rate consistent with stable inflation when the economy is at full employment--has trended downward over the past thirty years, according to Thomas Laubach, Director of Monetary Affairs at the Federal Reserve Board, and John C. Williams, President of the Federal Reserve Bank of San Francisco. And they anticipate it will remain low for "a long time."

According to their model, the decline occurred in two parts: a gradual descent from 1980 to the Great Recession followed by a precipitous drop. They currently estimate the equilibrium rate has been at or below zero since the end of 2010. That contrasts with the 50-year average for the short-term rate controlled by the Fed, adjusted for inflation, of about 2 percent.

The Fed needs to ease our usurious interest rates to trigger dynamic growth, particularly in housing.


Posted by at October 30, 2015 12:22 PM
  

blog comments powered by Disqus
« NOW, INSTEAD OF JUST SAVING IT...: | Main | TRADE, GOLF AND THE WoT...: »