Thinking about the new "new normal"

There are reasons to believe that the recent period of sluggish economic growth and near-zero interest rates are coming to a close. While the economy's potential growth rate is probably now only slightly above 2%, the unused capacity means that actual growth could run at 3% for several years without triggering a rise in inflation. Under those circumstances, we would expect the Fed to follow through on its pledge to tighten policy only very gradually. Nevertheless, before the end of this decade the fed funds rate should be back at its new equilibrium rate of slightly above 4%.