Fed still causing confusion with neutral

This report was sent to clients on November 18.

Its main point is that Fed policy is not guided by estimates of neutral. In real-time, the Fed makes decisions about what the funds rate should be and how they should guide, if at all, the outlook for the funds rate. This then conditions how the Fed describes neutral, both in terms of its (highly unreliable) estimate and the importance of it.

The concept of neutrality, then, is a deflection which could easily be eliminated from consideration of Fed policy.