Fed Governor Bowman: may raise neutral Intrerest Rate

Odaily Planet Daily News According to Bauman, a director of the Federal Reserve, the decline in investment demand and savings may raise the neutral Intrerest Rate. Since the outbreak of the COVID-19 pandemic, the neutral level of Central Bank’s policy Intrerest Rate may have already risen. Bauman said that after the outbreak of the epidemic, several factors such as low borrowing costs and supportive fiscal policies immediately took the upper hand, allowing the U.S. economy to maintain a fundamentally stable foundation even after the significant interest rate hikes by the Federal Reserve in 2021 and 2022. The same factors may lead to a rise in the so-called neutral Intrerest Rate. Economists also refer to this level as R-star (R*), which is the policy level at which the Federal Reserve neither stimulates nor restricts economic activity. Bauman said, ‘In describing the elasticity of actual economic activity to the rise in Intrerest Rate during recent tightening cycles, one way is to say that some of the factors mentioned earlier have led to the rise of R*’.