WASHINGTON (Reuters) - The normalization of monetary policy is hampered by a low neutral rate, Dallas Federal Reserve Bank President Robert Kaplan said on Thursday.
“There is room for the Fed to maneuver but not as much as people might think because the neutral rate of interest is somewhat lower than people think,” Kaplan told a meeting of financial service professionals in Dallas, Texas.
“It’s a challenging time,” he added.
The neutral rate is the level of borrowing costs associated with stable inflation and full employment. The U.S. central bank has struggled to raise interest rates again following the first increase in a decade last December.
Many Fed policymakers have downgraded their assessment of this rate, which is key to forecasting how high interest rates should ultimately rise.
Reporting by Lindsay Dunsmuir; Editing by Sandra Maler