We can’t observe the natural rate of interest. But we can estimate it. The New York Fed put it somewhere between 0.73 and 1.12 percent for Q4-2023.

Market rates are above the estimates of the natural rate, implying tight money. Yet we must be cautious. Inflation has increased for two months in a row; however tight money looks now, it looked even tighter in January and February. Furthermore, as Mickey Levy notes, stronger-than-expected real growth plausibly raises the natural rate of interest (but we don’t know by how much). ...

One month of higher inflation is a blip. Two months could be the start of a trend. We simply don’t know yet. The case is stronger than it was last month for the Fed to stay the course. The only thing I’m sure of is that discretionary monetary policy — steering markets by the seats of our pants — is a bad idea.