Recent speeches by Federal Reserve policy makers make clear that they have reduced their reliance on estimates of the long run neutral level of interest rates as a guide for monetary policy. Going forward, market participants will need to more closely scrutinize the central bank’s Summary of Economic Projections for clues as to where rates may be headed.
Those forecasts currently point to a fairly hawkish path for monetary path. Not only do they indicate policy will eventually turn restrictive, but they also suggest policy will remain restrictive even as economic growth slows. In other words, the Fed doesn’t anticipate turning tail on their policy path even if the economy dips next year.