The natural rate of (natural rate of interest) (r*) is probably the economics textbook Caichang see ideas, however, Goldman believes that this may have been a United States Federal Reserve (Fed) to consider when to raise interest rates or not, the latest major ideas.
The Bloomberg report, strategy team at Goldman Sachs noted that the Fed to raise interest rates or not, has a dilemma, they need to bring the natural rate (or neutral interest rate) concept in order to explain and deal with the status of monetary policy. Robin Brooks-led team at Goldman Sachs explained that Fed the current dilemma, raise rates because of hawkish rhetoric, also taking the dollar higher and aggravate the contraction force of monetary policy is not conducive to economic growth. To resolve this problem, natural to use interest rates to explain the current economic environment, if the nature of the current interest rates at ultra low levels, then low benchmark interest rates, it is reasonable.
Following this view, can give banks more time, maintain a low interest rate policy. The natural rate is 1898 Sweden concept first proposed by economist Knut Wicksell.
In short, under the full employment and inflation stable, in which "best" of the real interest rate, would be the natural rate. The basic logic is that if interest rates are lower than the potential return, investors will have a strong incentive to borrow, invest their money out, until there are no workers available in the economy, inflation heating up.
Therefore, high inflation suggests that interest rate lower than the natural level, relatively high unemployment implies that the interest rate is higher than the natural level, which could stifle economic growth. In October last year in the minutes of the Fed meeting, had already begun to explain the concept of the natural rate of. Fed Chairman of the San Francisco study of John Williams and Economist Thomas Laubach last October, 1960 's natural rate of around 5%, and into the early 21st century, has dropped below 3%, around 2008, the natural rate of collapsed along with the economy.
Point is, since then, the natural rate, and there is no rebound, but continued to fall, the end of 2015 to below 0.5%. Due to the natural rate is close to 0, also on behalf of the Federal Reserve 0.25-0.5% rate, and not so easy as it looks. In June this year advised on this description, "by historical standards, neutral interest rate is now below the average. I think all of us are involved in a process of continuous reassessment of neutral interest rate trends.
"The tone, the Fed is not easy to take action. Goldman Sachs, the past few years, Fed with a different theoretical framework, to see what kind of interest rates is appropriate.
Reference to the natural rate, is still in its early stages, Fed usually takes years, consensus can be formed. In simple terms, when Fed thinking with a focus on the natural rate, according to the current levels, there is no hurry to raise interest rates. Futures markets pricing shows that Fed September interest rate rises at the rate of about 25%.
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