Fed officials lower sights on r* again – Goldman Sachs

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 23, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    Research Team at Goldman Sachs, suggests that the equilibrium real rate—or r* (“r star”)—implied by Fed officials’ projections has fallen steadily since 2012 and is negative for the next two years, under a standard policy rule.

    Key Quotes

    “We see a few possible explanations, including: (1) changing views on the structure of the economy over the longer-run; (2) a focus on broader measures of labor market slack; (3) somewhat more focus on headline inflation and related risks; and/or (4) deliberate policy inertia due to uncertainty.

    The SEP-implied r* estimates have moved lower for several years, likely reflecting a combination of long- and short-run factors. Accounting for some of these influences suggests that most Fed officials likely see r* at around zero currently, and rising only very gradually over the coming years—consistent with public comments from Chair Yellen. While it is difficult to be confident, our best guess would be that Fed officials’ longer-run r* estimates will not decline much further, in part because these have now converged on market estimates of longer-run real rates.”
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