SFCDialogue?GlobalMacroResearchHeada

Harry Wu, journalist for Southern Finance Omnimedia Corp

According to the dot plot, the Fed's long term neutral rate may be around 3%. Whereisthe neutral rate? How much room is left for this round of interest rate cuts?

Rob Subbaraman, Head of Global Macro Research amp; Co-Head of Global Markets Research at Nomura, expects a higher neutral rate in a Dialogue with SFC recently.

The Nomura view is that the neutral rate is probably rising, but it's very difficult to estimate it exactly, because it's not observable. The neutral rate is meant to be the rate where growth is in equilibrium. There's no upward or downward pressure on inflationand it’sstable.Everyone is searching for the neutral rate, but Subbaramansaidpeoplereally don't know exactly where it is.

“But if you look at the FOMC's long run interest rate forecast, it has been steadily rising to 3%now. And if you look at estimates by regional Fed models,there's a wide range in how high the neutral rate could be,” he added.“The Richmond Fed recently put out a report that suggested that the neutral rate could be as high as 4%.”

So Subbaramanthinksthat the neutral rate is probably gained. It is probably even higher than 3%.People don't knowthe exact number, but an indication that monetary policy is not that restrictive in the US right now, is if you look at the equity market,credit spreadsand overall financial conditions, they are still quite loose. So hewouldn't characterize US monetary policy as very restrictive at this stage.