Fed Study Challenges Assumption of Restrictive Policy as Interest Rate Expectations Shift

The Federal Reserve Bank of San Francisco has released a new study on its neutral interest rate model, challenging the prevailing view among economists and Fed officials that the current policy rate is restrictive.

According to the study, if measured against the neutral rate - a medium-term estimate of the interest rate at which borrowing costs neither restrain nor stimulate the economy - the Fed's current policy rate of 3.50%-3.75% is likely accommodative.

This finding stands in contrast to the prevailing view among most U.S. central bank policymakers, who believe that current monetary policy remains restrictive or may already be at a neutral stance.

The study estimates that the medium-term real natural rate of interest indicates that monetary policy remains accommodative as of August 2026, but acknowledges that such estimates still entail substantial uncertainty.