neutral interest rate

Oil prices holding above $100 a barrel are prompting central banks to reconsider their estimates of the neutral interest rate — the level that neither stimulates nor restricts the economy. Sustained energy costs keep inflation elevated, which could mean rates need to stay higher for longer than previously assumed.

Markets worldwide are contending with the possibility that the neutral rate of interest — the level that neither stimulates nor restrains economies — may be higher than previously assumed. The shift is being driven by surging oil prices and rising bond yields, fueling debate among investors and policymakers about how long interest rates will stay elevated and what that means for global growth.

Reuters' Morning Bid column argues that the Federal Reserve's evolving estimate of the neutral interest rate — the level that neither stimulates nor restrains the economy — looks much like the decades-old consensus, despite talk of a structurally higher rate. Markets are parsing Fed guidance for clues on how far and fast borrowing costs might eventually fall.