The "Neutral" Rate and Implications for 30-year Mortgage Rates

Housing economist Tom Lawler has written extensively on the neutral rate. He has argued that the neutral rate has increased back to pre-financial crisis levels and that it seems like that “the current stance of monetary policy is not meaningfully restrictive”.

Analysts are catching up. This morning, economists at BofA wrote: “The most reasonable interpretation of the data flow seems to be that the neutral rate has increased a lot more than previously thought, and policy might not be restrictive at all.”

And in his testimony to Congress last week, Fed Chair Powell said: “This is my own view, and there are many different views on this, but it is that the neutral rate has risen meaningfully … from what was clearly very, very low before the pandemic … [as do] many of my colleagues on the FOMC".

What does this mean for Mortgage Rates?

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