Estimated Path of the Fed Rate

Using my model of core inflation, nominal rates, profit rates, labor share & capacity utilization, here is a graph of the present situation. The estimated natural real rate for this graph is 1.7%.

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The vertical dashed green line shows where capacity utilization is now at 75.2%. The solid red line shows the path of the estimated Fed rate. The Fed rate now sits at 0.3%.

The model says that if capacity utilization goes to 76%, the Fed rate would go to 0.8% in order to stay on path to normalization.

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