For example, in the most recent Summary of Economic Projections compiling the individual forecasts of FOMC participants, the median estimate of the longer-run federal funds rate, a value that incorporates policymakers’ assessments of the equilibrium rate, was 2-1/2 percent, down from 4-1/4 percent in early 2012.
3 All else being equal, a fall in the equilibrium rate of interest lessens the scope for the FOMC to cut rates in response to a significant economic downturn, as the distance to zero shrinks. In the absence of compensating policy actions, this situation may aggravate economic downturns. Thankfully, in practice policymakers have several additional tools to ease financial conditions and support the economy.