Last week’s meeting of the Federal Open Market Committee (FOMC) surprised even those who expected a dovish outcome. As the Fed wrangles with its policy framework, one takeaway is clear: don’t expect rate hikes this year—and possibly next.

As recently as six months ago, the committee expected to raise official short-term interest rates three times this year. Now, it doesn’t expect to raise rates at all in 2019. Sure, the FOMC’s economic forecasts have deteriorated, but only modestly. Much too modestly, in fact, to justify such a big swing in the committee’s rate-hike expectations.

We think two factors are behind the sudden shift: a reassessment of what the “neutral” interest rate actually is and recognition that inflation has been too low for too long.

The Neutral Interest Rate Has Been Creeping Lower

In economic theory, the neutral interest rate is the rate that doesn’t encourage or discourage inflation, assuming no external shocks jumble the picture. Nobody really knows what the actual neutral interest rate is. It’s best to think of it as a range of rates, as the Fed has emphasized recently.

The FOMC has steadily lowered its median estimate of the neutral rate during this expansion, from 3.75% in 2018 to 2.75% today. Several members think it may be lower. There’s uncertainty in the estimates, and this seems to have convinced many in the FOMC that the market disruption after December’s rate hike is a sign that we’ve already reached neutral. These members don’t think we need any more hikes until inflation warms up and hints at an overheating economy.