Assessing a Medium-Run Natural Rate of Interest
· frbsf.org
The natural rate of interest is the inflation-adjusted interest rate consistent with the economy operating at full capacity. Although this rate helps gauge the economy’s health, empirical estimates of it are imprecise and volatile. A medium-run measure that focuses on responsiveness to persistent economic factors while removing short-term volatility may provide more reliable guidance. Analysis suggests that monetary policy using this measure could stabilize inflation and achieve maximum employment more effectively than standard benchmarks. Current medium-run estimates suggest that monetary policy is accommodative, although uncertainty around this estimate remains high.
FRBSF Economic Letter 2026-22 | August 17, 2026
The natural rate of interest is the inflation-adjusted interest rate consistent with the economy operating at f...