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Commentary By Allison Schrager

The Fed Is Basically Just Guessing About Interest Rates

Shifting the economy into neutral without reversing into a recession requires knowing where neutral is.

Much as the world aspires to normal after two wrenching years of a pandemic, the Federal Reserve is reaching for a neutral monetary policy that will arrest inflation without triggering a recession. But finding neutral on the economy’s gearshift may not be any easier than defining normal these days.

Monetary policy is much less precise than we’d like to believe. We can't even be sure what a neutral rate would be. People would probably be disturbed if they knew how poorly economists understand how changing interest rates feeds through markets and ultimately affects inflation and unemployment.

Continue reading the entire piece here at Bloomberg Opinion (paywall)


Allison Schrager is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.

This piece originally appeared in Bloomberg Opinion