Yellen, Bernanke and the equilibrium real rate

In an attempt to justify leaving the fed funds rate at near-zero until some time later this year, Fed Chair Janet Yellen last week hinted that she thought the current equilibrium (or neutral) real rate might be as low as zero, which almost puts her in the camp of the secular stagnationists. By coincidence, Ex Fed Chair Ben Bernanke used his first blog post today to argue that the equilibrium rate was now much lower too. We agree with the broad thrust of these arguments, but our own research suggests that the equilibrium rate is still around 1.0%, in which case a standard Taylor rule would suggest the Fed should have already started to hike its policy rate.