From Real Time Economics' morning Grand Central post:
HILSENRATH’S TAKE: HOW HIGH WILL FED PUSH RATES? SEE NEW YORK FED’S ANSWER
Investors are especially focused these days on where the Federal
Reserve’s target interest rate is likely to end up in the years ahead.
During the tightening cycle that ended in 2006 the Fed pushed its target
fed funds rate up to 5.25%. In 2000 it pushed it to 6.5%. Fed officials
say they don’t expect rates to go very high this time around because
the economy will remain fragile for years after the 2008 financial
crisis.
So how far will the Fed go?
For clues look at a survey conducted by the Federal Reserve Bank of
New York of the 21 bond dealers through which it conducts its market
operations. The primary dealer survey is
fielded before every Fed policy meeting and released with a lag. The
April survey, released earlier this week, shows bond dealers expected
the fed funds rate to average just 2.75% for the coming decade. That
projection includes an expectation of rates remaining near zero this
year and then slowly rising starting in 2015 to 3.75% by the first half
of 2018. Dealers don’t appear to expect the fed funds rate to get much
higher than the 3.75% rate they foresee by 2018, given their low
forecast for the entire decade.
The long-run path of the rate is getting attention in markets for a
few reasons. First, the Fed drew attention to this point in its March
policy statement, when it said officials believed rates would remain
below the 4% level that they see as appropriate in the long-run, even
after the unemployment rate and inflation get back to normal levels.
Moreover former Fed Chairman Ben Bernanke appears to be hammering home this point in private meetings with investors of late....MORE
