Briefing

Will Interest Rates Remain Elevated Even as Monetary Policy Normalizes?

Abstract: Long-term bond yields indicate an increase in long-run r* of between 1.2 and 1.4 percentage points relative to its pre-pandemic level. This increase in r* is compatible with underlying economic shifts following the pandemic, including a reduction in personal savings by U.S. households. Evidence suggests that, even as inflation returns to trend and monetary policy normalizes, policy rates may remain above their prepandemic level.

Keywords: interest rates; inflation; r*; monetary policy;

Bibliographic Information

Provider: Federal Reserve Bank of Richmond

Part of Series: Richmond Fed Economic Brief

Publication Date: 2024-08

Volume: 24

Issue: 28