Interest Rates Are Well Below What Academic Formulas Suggest

Policy rules used to guide central bank call for a rate between 4% and 7%, report says; the Fed raised rates to a range between 1.5% and 1.75% this week

Current economic conditions show that high inflation would call for the Federal Reserve to set rates between 4% and 7% this year

The Fed consults such policy-setting rules but doesn’t unconditionally follow them when setting interest rates ..

they take into account a narrow set of economic data and they don’t account for the central bank’s difficulty stimulating growth during downturns when rates are pinned near zero. 

The Fed raised its benchmark rate by 0.75 percentage point this week to a range between 1.5% and 1.75%..

a larger increase than the half-point rate rise that most officials had said they expected two weeks ago.  

All 18 officials at their policy meeting projected rates would need to rise to at least 3% by December, and most projected rates would need to rise to 3.75% next year. 

The Fed’s preferred inflation gauge, the personal-consumption-expenditures price index, rose 6.3% in April from a year earlier, near a 40-year high. 

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