Michael Bauer, an economist at the San Francisco Federal Reserve, explores how to build a macroeconomic model to forecast interest rates, in a recent article. His proposal links interest rates to the underlying trend in inflation and the equilibrium real interest rate.
In Forecasting interest rates with macro trends, Bauer acknowledges foreseeing interest rates is difficult because they vary widely from day to day and have not fluctuated around a stable average since 1971.
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