Yellen’s March to Neutrality

Yellen’s speech Friday, in which she mentioned the “neutral interest rate” or equivalent concepts 18 times, proves our case that Fed policy is now being guided by that concept in the manner of a policy rule. It explains why there was such low global inflation despite ZIRP, NIRP and massive asset purchases. A March hike is a certainty now. And with future gradual rate hikes now timed to gradual increases in the “neutral rate,” these hikes won’t be actual policy tightenings and won’t choke off growth.