IDEAS home Printed from https://ideas.repec.org/a/fip/fedcec/101561.html
   My bibliography  Save this article

Neutral Interest Rates and the Monetary Policy Stance

Author

Abstract

The neutral interest rate (r-star) is an important input in monetary policy discussions and is commonly used to assess the stance of monetary policy. This Economic Commentary presents estimates of the neutral interest rate from a recently developed model and provides a high-level description of this new model. With data through 2025:Q2, the model estimates the implied (medium-run) nominal neutral interest rate to be 3.7 percent, with a 68 percent coverage band ranging from 2.9 percent to 4.5 percent. Given that the effective nominal federal funds rate is currently in the range of 4.25 percent to 4.5 percent, this model estimates with a high level of certainty (77 percent probability) that the policy stance is in restrictive territory.

Suggested Citation

  • Taylor N. Horn & Saeed Zaman, 2025. "Neutral Interest Rates and the Monetary Policy Stance," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2025(08), pages 1-12, September.
    • Handle: RePEc:fip:fedcec:101561
    DOI: 10.26509/frbc-ec-202508
    Note: The updates to the estimates of neutral interest rate (r-star) from the Zaman model reported in this Economic Commentary are available at openICPSR, https://doi.org/10.3886/E227362V1.
    as

    Download full text from publisher

    File URL: https://doi.org/10.26509/frbc-ec-202508
    File Function: Persistent link with full text
    Download Restriction: no
    File URL: https://www.clevelandfed.org/-/media/project/clevelandfedtenant/clevelandfedsite/publications/economic-commentary/2025/ec-202508-neutral-interest-rates-and-monetary-policy-stance/ec-202508-neutral-interest-rates-pdf.pdf
    File Function: Full text
    Download Restriction: no
    File URL: https://libkey.io/10.26509/frbc-ec-202508?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedcec:101561. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: 4D Library (email available below). General contact details of provider: https://edirc.repec.org/data/frbclus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.