Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “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
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…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
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
Upside of Inequality Oxford Unintended Consequences

AI Summary. The Federal Reserve might refrain from cutting interest rates if inflation does not fall enough, or if economic growth runs above potential, unemployment pushes below its 50-year low, and financial conditions ease further. In that case, policymakers could argue the short-run neutral rate is higher than common estimates, making current policy less restrictive than assumed.

David Mericle Goldman Sachs
Date Posted:

.@GoldmanSachs baseline forecast includes a rate cut in Q2 2024 with a terminal fed funds rate of 3-3.25% but notes a rising likelihood the Fed holds rates steady.

Why might the Fed hold off on cutting interest rates?

Core argument: The simplest reason the FOMC might not cut rates is that inflation might not come down quite enough.

Why might the FOMC not cut? The simplest reason is that inflation might not come down quite enough. Another possible reason is that even if it does, if GDP growth is above potential, the unemployment rate is pushing below its 50-year low, and financial conditions have eased further on enthusiasm about a soft landing, then stimulating an already-strong economy by cutting might seem like an unnecessary risk, especially with the memory of the recent inflation surge still fresh. In that scenario, the FOMC could say that the short-run neutral rate is higher than common estimates of the medium-run neutral rate, and as a result the monetary policy stance is actually not so restrictive and the need to cut is not so immediate.

Takeaways by Macro Roundup® AI

  1. The simplest reason the FOMC might not cut rates is that inflation might not come down quite enough.
  2. Even if inflation falls, GDP growth above potential, unemployment pushing below its 50-year low, and financial conditions eased on soft-landing enthusiasm could make cutting rates for an already-strong economy seem an unnecessary risk after the recent inflation surge.
  3. The FOMC could say the short-run neutral rate is higher than common estimates of the medium-run neutral rate, making the policy stance less restrictive and the need to cut less immediate.

Related Articles:

  • What Have We Learned About the Neutral Rate? — Analysts estimate that if inflation is brought down without a recession, the Federal Reserve's policy rate will stabilize nearer 3–3.25% than the 2.5% longer-run median projection of Federal Reserve officials. Projected shifts in government debt and demographics imply a roughly 0.5 percentage point net increase in the neutral rate over the next decade.
  • The Evolution of Short-Run r* After The Pandemic — A model estimates that the short-run neutral real interest rate — the rate consistent with the economy operating at potential — has increased notably, to some extent outpacing the large increase in the policy rate. The model attributes this change mainly to financial shocks, reflecting financial conditions such as corporate spreads remaining resilient despite the higher policy rate.
  • The Case for “Higher for Longer”: Prices are Disinflating, But Not Wages (Yet) — Occupations with the fastest pay gains have seen wage growth normalize while pay growth elsewhere remains persistently faster, with only modest deceleration from the peak. The author argues the neutral policy rate has risen as an investment drought ends, making 5.5% short-term rates unremarkable and 4% 10-year Treasury yields potentially too low.
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