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Fed’s Williams defines neutral short-term interest rate as 2.5%

“The neutral level of short-term interest rates that is neither boosting nor retarding the U.S. economy is 2.5%, said San Francisco Fed President John Williams, on Tuesday” writes Senior Economics Reporter for The neutral rate is affected by global economic conditions, not just those in the U.S., he said. Williams, a voting member of the Fed policy committee, is moving to take over the influential New York Fed president’s post next month.After the last rate hike in March, the federal funds rate is below neutral, in a range of 1.5-1.75%, meaning it is still boosting growth.While the neutral rate is not fixed, Williams said he didn’t see it moving much higher, even with the forecast of a healthy economy over the next few years.

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