Jerome Powell, Chairman of the US Federal Reserve, has acknowledged that neutral interest rates have risen, indicating that current monetary policy is restrictive. He pointed out that, although the Fed is currently keeping the key rate at around 5.5%, neutral rates appear to have risen in the short term. This observation marks a change from the previous period of very low interest rates and low inflation, which led to a flexible inflation targeting framework of around 2%.
Powell admitted that the COVID-19 pandemic had profoundly altered economic dynamics, making forecasts more difficult and necessitating a reassessment of monetary policies. He also referred to inflationary factors such as the repatriation of production and tariffs, which have contributed to an economic situation very different from that anticipated in his speech at Jackson Hole in 2020.
The Fed plans to review its policies at the end of the year to better understand the impact of its decisions during the crisis and adjust its approach in line with the evolution of neutral interest rates. Powell has expressed his intention to learn from recent events to better navigate the current economic environment.
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