In the dimly lit corridors of monetary policy, the Federal Reserve is chasing a ghost – the elusive “neutral rate” of interest, or r*. This phantom benchmark, where policy neither stimulates nor restricts growth, remains an ever-fleeting mystery. Despite guiding the economy to a soft landing, the Fed’s war is far from won. Even with rates at supposedly restrictive levels, clear evidence of their impact is puzzlingly absent, raising questions about future policy action. Is the Fed on the brink of mastering this elusive economic specter, or will the hunt leave it grappling with unintended consequences as inflationary pressures creep back into focus? The answers will define the year ahead.
Please enjoy the fourth theme release in our six-part series leading up to the release of Waterloo Capital’s 2025 Annual Outlook.