Thus, we expect to have less scope for interest rate cuts than we have had historically. In part, current expectations for a low future federal funds rate reflect the FOMC’s success in stabilizing inflation at around 2 percent – a rate much lower than rates that prevailed during the 1970s and 1980s.
Another key factor is the marked decline over the past decade, both here and abroad, in the long-run neutral real rate of interest – that is, the inflation-adjusted short-term interest rate consistent with keeping output at its potential on average over time.