Fed Paper Warns of Risk of Near-Zero Rates in the Future

A new paper from the New York and San Francisco Federal Reserve banks suggests that the Fed may set interest rates at near-zero levels again in the coming years, despite current higher borrowing costs. The risk of returning to super low rates is low now, but uncertainty could lead to a significant chance of near-zero rates in the medium to long term. The Fed’s history with near-zero rates has created challenges, leading to bond buying programs and increased balance sheet size. The current target rate of 4.25-4.5% is relatively high, but Fed officials expect to lower it to 3.4% by 2027. President Trump is pressuring for aggressive easing, while the Fed’s neutral rate projection of 3% may provide a buffer for rate cuts without hitting zero. The interest-rate outlook is complex and influenced by expected levels and uncertainty.

Read more at Yahoo Finance: Fed paper says risk of falling back to near zero rates still in play