Recent studies suggest that the neutral level of the federal funds rate appears to be much lower than it was in previous decades.17 Indeed, most FOMC participants now assess the longer-run value of the neutral federal funds rate as only 2-3/4 percent or so, compared with around 4-1/4 percent just a few years ago.18 With a low neutral federal funds rate, there will typically be less scope for the FOMC to reduce short-term interest rates in response to an economic downturn, raising the possibility that we may need to resort again to enhanced forward rate guidance and asset purchases to provide needed accommodation.19 Of course, substantial uncertainty surrounds any estimates of the neutral level of short-term interest rates.
Let me first congratulate Bank of Baroda on reaching this milestone in its history. Allow me also to commend all those whose work and dedication have positioned the bank as a successful and respected global bank. A centenary should indeed be celebrated. This celebration, however, cannot start without saluting the founder of Bank of Baroda, Maharaj Sayajirao.