The following is an excerpt from our October 27, 2025 Morning Briefing.
The Fed will almost certainly cut the FFR by 25bps on Wednesday. It will probably do it again on December 10. Apparently, Fed officials believe that the current 4.00% reading of the FFR is restrictive. That’s because they are collectively convinced that the long-run FFR is 3.00% (Fig. 12 below). This rate is also often called the “neutral FFR” or “r-star” (a.k.a. “r*”), which is deemed to be the interest rate that achieves the Fed’s dual mandate of maximum employment with price stability.
The neutral FFR concept is a bad joke, if you’d like to know what we really think. Here’s why:
