Definition
The interest rate that neither speeds up nor slows down the economy. It can't be seen directly, only estimated.
The story
Think of driving on a flat road with your foot resting lightly on the pedal: not speeding up, not slowing down. That's neutral. Rates above it are the Fed pressing the brake; below it, the gas. Nobody knows exactly where neutral is, which is why economists argue about it.
Why markets watch it
It tells you whether the Fed's rates are actually tight or loose.
Connects to
We explain why it moves markets. What you do with it is your call. Commentary and education only. Not financial advice. All terms