Edward Conard

Top Ten New York Times Bestselling Author

  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

AI Summary. The authors project the Federal Reserve will begin cutting rates once core inflation falls below 2.5%, then cut 0.25 percentage points per quarter until rates reach 3.5–3.75%, describing the cuts as optional rather than necessary to avoid recession. They expect the equilibrium rate to exceed last cycle's, partly because larger fiscal deficits boosting demand are likely to persist.

David Mericle Goldman Sachs
Date Posted:

David Mericle @GoldmanSachs forecasts that US real GDP will grow 1.8% in 2024 on a Q4/Q4 basis, or 2.1% on a full-year basis. He expects rate cuts in Q4 of next year with a terminal rate of 3.5-3.75%.

Will the neutral interest rate settle higher than last cycle's?

Core argument: The authors expect the FOMC to deliver its first rate cut in 2024 Q4 once core PCE inflation falls below 2.5%, followed by one 25bp cut per quarter until the fed funds rate reaches 3.5–3.75% in 2026 Q2.

We expect the FOMC to deliver its first rate cut in 2024 Q4 once core PCE inflation falls below 2.5%. We then expect one 25bp cut per quarter until 2026 Q2, when the fed funds rate would reach 3.5-3.75%. While we see rate cuts next year as optional in that they are not necessary to avoid recession, we expect the FOMC to conclude that while neutral might not be as low as the 2.5% median longer run dot, it probably is not as high as 5.25-5.5%, so some amount of normalization makes sense as inflation falls. We expect the equilibrium rate to be higher than last cycle because the post-financial crisis headwinds are behind us, much larger fiscal deficits that boost aggregate demand are likely to persist, the funds rate is approaching equilibrium from above rather than below, and the r* narrative is changing.

Takeaways by Macro Roundup® AI

  1. The authors expect the FOMC to deliver its first rate cut in 2024 Q4 once core PCE inflation falls below 2.5%, followed by one 25bp cut per quarter until the fed funds rate reaches 3.5–3.75% in 2026 Q2.
  2. The authors view rate cuts as optional rather than necessary to avoid recession, expecting the FOMC to conclude that neutral is probably not as low as the 2.5% median longer-run dot nor as high as 5.25–5.5%, so some normalization makes sense as inflation falls.
  3. The authors expect the equilibrium rate to exceed last cycle's because post-financial-crisis headwinds have passed, much larger fiscal deficits that boost aggregate demand are likely to persist, the funds rate is approaching equilibrium from above rather than below, and the r* narrative is changing.

Related Articles:

  • Macro Outlook 2024: The Hard Part Is Over — Goldman Sachs projects limited recession risk, holding a 15% US recession probability, and expects tailwinds to global growth including strong real household income growth, a smaller drag from monetary and fiscal tightening, recovering manufacturing, and central banks more willing to cut rates if growth slows. It projects core inflation falling to 2–2½%.
  • Inching Toward Equilibrium — With short-term interest rates far enough above zero, they are again the central bank's main lever for steering the economy toward equilibrium, a difficult task because policy changes affect spending, output, and inflation with lags that can span years. Equity yields have changed little while bond yields rose significantly, moving equity pricing further from equilibrium.
  • Soft Landing Summer — The estimated 12-month US recession probability has been cut to 15%, matching the postwar unconditional average implied by a recession occurring roughly once every seven years, and far below the 60% Bloomberg consensus. The authors expect interest rates to fluctuate in a higher range than in the post-2008 period.
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