(Justin Sullivan/Getty Images)John Williams has written the most thoughtful piece on monetary policy that has come out of the Federal Reserve in a long time. First, there is a kind of hysteresis in rates in which a lower interest rate today tends to lower the neutral rate in the future. To the extent that low rates stimulate spending by pulling forward investment, low rates today reduce neutral rates tomorrow by moving investment forward. Williams rightly, if rather tentatively, draws the conclusions that a chronically very low neutral rate has important policy implications. More generous Social Security would probably reduce the saving rate, thereby raising the neutral interest rate with no change in budget deficits.

Source: Washington Post August 18, 2016 15:28 UTC