Fed Governor Bowman: Neutral rate has risen since COVID-19 pandemic

The neutral level of the central bank's policy rate may have risen since the COVID-19 pandemic, according to Bowman, a Federal Reserve governor. Several factors, such as low borrowing costs and supportive fiscal policy, immediately took hold after the outbreak of the epidemic, according to Bowman, which have kept the U.S. economy on a largely solid footing even after the Federal Reserve's sharp rate hikes in 2021 and 2022. The same factors could cause the so-called neutral rate to rise. Economists also refer to this level as the R-star (R *), the level at which the Federal Reserve neither promotes nor restricts economic activity. "One way to describe the resilience of real economic activity to rising interest rates in the recent tightening cycle is to say that some of the factors mentioned earlier contributed to the rise in R *," Mr. Baumann said.