New SF Fed Model Suggests Current Fed Policy May Already Be Too Loose
Nashnova编辑部
A new San Francisco Fed study estimates that, measured against the medium-term neutral rate, the current 3.50%–3.75% policy rate sits 0.5 to 0.75 percentage points below neutral — directly contradicting most Fed officials' view that policy remains restrictive, and potentially reshaping the rate-path debate.
What does this new model actually say?
San Francisco Fed research adviser Vasco Cúrdia estimates the medium-term real natural rate — the "just right" rate where the economy neither overheats nor stalls — at roughly 1.5%.
The current nominal rate of 3.50%–3.75% minus about 3% inflation leaves a real policy rate of only 0.5%–0.75%, which is 0.5 to 0.75 points below neutral.
This means → by this yardstick, the Fed is not "pressing the brake" — it is already "lightly pressing the accelerator." Policy is loose.
Why does it clash with the Fed's own reading?
Fed officials benchmark against the long-run neutral rate and conclude the current rate is about 0.5 points above neutral — i.e., policy is still tight.
Cúrdia uses the medium-term neutral rate and reaches the opposite conclusion: policy is already loose.
In plain terms = same rate, different ruler, opposite verdict. The real debate is not whether to move the rate — it is which ruler to use.
Is this a hawkish signal?
Logically, if the rate already sits below neutral, there is a case for further hikes to return to neutral — the framework itself tilts hawkish.
But Cúrdia himself stresses this is a research framework, not an official rate signal from the San Francisco Fed or the FOMC.
This reflects a deliberate firewall inside the Fed system: research is research, policy is policy.
What is the market pricing in?
Recent data have softened across the board: July CPI rose just 0.1% month-on-month; core CPI fell to 2.5% year-on-year; nonfarm payrolls unexpectedly dropped by 23,000.
Rate futures now put the probability of a September hike at roughly 35%, down from 52.2% a week earlier. The market assigns about 65% odds to a September hold.
Goldman Sachs chief economist Jan Hatzius said a September hike is "very unlikely" unless pre-meeting data stage a "dramatic reversal."
How divided is the FOMC?
The July vote split 9-to-3: dissenters Hammack, Kashkari, and Logan pushed for a 25-basis-point hike, arguing policy was not yet restrictive enough.
A Reuters poll shows the vast majority of economists expect the 3.50%–3.75% range to hold through year-end 2026.
This means → the model says "already loose," three voters say "not tight enough," and the market bets "no more hikes." All three camps hold their ground — data before the September meeting will be the tiebreaker.
Content is for reference only, not financial advice.