Economists at the Federal Reserve Bank of Cleveland have released new estimates of the nominal neutral interest rate using a model developed by Saeed Zaman. According to their analysis, the medium-run nominal neutral interest rate stands at 3.7 percent based on data through the second quarter of 2025.

Saeed Zaman and Taylor Horn explained in an Economic Commentary that, “With the nominal federal funds rate currently in the range of 4.25 percent to 4.5 percent, the Zaman model estimates the policy stance to be in restrictive territory with a high level of certainty, at a 77 percent probability.”

The neutral interest rate is defined as the rate at which monetary policy neither restricts nor stimulates economic activity. Because it cannot be directly observed, central banks often use various models to estimate this key benchmark for monetary policy decisions. As noted by Zaman and Horn, “many central banks maintain a suite of models to infer the neutral interest rate for their respective economies.”

The newly introduced Zaman model incorporates additional information compared to previous approaches. The authors wrote, “To infer the neutral interest rate, the Zaman model assumes a richer structure and conditions on more information, including survey data, than do existing models.”

The Cleveland Fed serves as one of twelve regional Reserve Banks within the Federal Reserve System and plays a role in shaping national monetary policy while supervising financial institutions and supporting communities across Ohio, western Pennsylvania, eastern Kentucky, and northern West Virginia.

Further details can be found in their Economic Commentary titled "Neutral Interest Rates and the Monetary Policy Stance" as well as related research such as "A Unified Framework to Estimate Macroeconomic Stars."