Updated projections from the Fed's Sept. 20-21 policy meeting show that rate-setters' outlook for the economy's equilibrium rate of interest rate over time remained 2.5%. Bearing in mind that the Fed's inflation target is 2.0%, this suggests that the real rate of interest - r-star (r*), the nebulous, inflation-adjusted interest rate that neither fuels nor curbs growth - is also unchanged at 0.5%. The fact it didn't suggests the Fed still sees sky-high inflation as ultimately 'transitory', albeit as a result of its punishing interest rate rises and more prolonged than it had previously anticipated. chartNEBULOUS RATEThe Fed's policy target rate is now 3.00%-3.25%, the highest since 2008, and the Fed's latest projections show it rising to the 4.25%-4.50% range by the end of this year and ending 2023 at 4.50%-4.75%. Steven Englander, head of FX strategy at Standard Chartered, suggests the neutral rate is perhaps 3.00%, maybe even higher.

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