Bloomberg's Berry asks if Fed Rate will stop 2.5% - or be 6% next year?

[papau]

http://quote.bloomberg.com/apps/news?pid=10000039&cid=berry&sid=aGcMfFbiMbNs


Might the Fed Rate Increases Stop at Only 2.5%?

April 28 (Bloomberg) -- A huge spread has developed in estimates of where the Fed is likely to stop once it begins to raise its 1 percent target for overnight rates.

Analysts and policy makers mention figures ranging from 2.5 percent to at least 5.5 percent or 6 percent, with vastly different implications for the economy depending on who might be closer to the mark. Moreover, the analysis behind the estimates varies significantly. <snip>

"Since the growth of productivity is running considerably higher than the average for that period, I assumed that a reasonable range for the equilibrium real rate would be 2.5 percent to 3.5 percent. I also assumed a reasonable estimate for inflation expectations would be a core PCE inflation rate of 1 percent to 2 percent. Therefore, the range for the nominal natural rate would be between 3.5 percent (2.5 percent real and 1 percent inflation) and 5.5 percent (3.5 percent real and 2 percent inflation)," Parry said. <snip>