US FOMC participants’ median estimate of the level of the federal funds rate in the “longer run” has fallen by 25bp, to a new low of 2.75%. This compares to a median estimate of 4.25% in early 2012. Our view is that such a decline in the longer-run level of the federal funds rate has raised the equilibrium valuations of financial and real assets well above the averages with which they are frequently compared.
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