On the press convention for at the moment’s FOMC assembly, there was numerous speak about how the 50bps drop was dramatic. That centered on the change, fairly than the extent…Contemplate what some measures of the Taylor rule (which refers back to the degree of the Fed funds fee) point out.
Supply: Atlanta Fed, accessed 18 Sep 2024. Purple + by writer, indicating present Fed funds fee at 4.83%. No smoothing included, so consider this as a “static” Taylor rule.
I believe Various 1 as a FAIT-like Taylor rule (with no smoothing), Various 2 as a extra conventional Taylor rule utilizing an output hole, whereas Various 3 makes use of a estimated r*.
By this measure, we’re “catching up” with the place we ought to be. One can mess around with the measures (within the Atlanta Fed’s nice Taylor rule utility) to get a barely totally different image (e.g., assume the r* is 2%). Nonetheless, I believe Various 3 is fairly affordable.
