The current rate, which remains unchanged following last week’s decision, acts as a drag on economic activity. Taylor noted that before the outbreak of conflict in late February, the committee had planned a half-percentage-point reduction for the year. That trajectory stalled as energy prices spiked and consumer confidence cratered, forcing the bank to prioritize inflation control over growth.

Should energy markets stabilize and the threat of prolonged inflation recede, Taylor argues that rates should resume a downward path. He estimates the neutral rate—where borrowing costs neither stimulate nor restrict the economy—at 3%. If the economic damage from the conflict deepens and inflation begins to undershoot the 2% target, he suggests the bank must be prepared to cut rates quickly, potentially pushing them below that neutral threshold to prevent further stagnation.