The Fed will have to keep interest rates higher over the long te

“The neutral interest rate is a difficult concept to define. Changes in financial conditions will be more useful in determining the appropriate policy stance,” Goldman said in a note to clients. Factors driving policy rates include government budget deficits, investments in AI and reducing carbon emissions as well as productivity gains from AI.

Furthermore, continued growth in developed economies despite higher interest rates could also cut demand. “As the labor market rebalances, growth is at potential and inflation normalizes, many central banks will consider further easing unnecessary,” the bank said. If economies remain strong with high interest rates, some central banks may reconsider their assessment of long-term interest rates.”