Nine months ago, the Fed raised interest rates for the 11th time since the pandemic, firmly cementing the federal funds rate above 5%.

It was supposed to be a temporary measure to rein in inflation, but a growing number of economists think 5% interest rates could be the new norm.

According to Jason Thomas, global head of research at investment firm Carlyle, the effect of higher interest rates on the economy was overblown.

“Last year, there was this sense that the economy really couldn’t withstand an interest rate shock,” Thomas told Axios in an interview.

“Talk of a soft landing, hard landing pervaded economic discussion. Now it has shifted generally to a more optimistic tone,” he explained.

George Maris, chief investment officer at Principal Asset Management, agreed, claiming that higher rates are healthier for the economy.

“The last decade was highly abnormal,” Maris said. “What we’re doing now is getting to a much more normalized interest rate environment.”

Meanwhile, David Beckworth, a senior fellow at the Mercatus Center at George Mason University, said, “It seems more and more likely that we’ll have higher growth and higher interest rates going forward.”

Beth Hammock, co-head of the global financing group at Goldman Sachs, seconds the view of higher-for-longer.

In an interview with CNBC’s Squawk Box, Hammock said that it was the period of "free money" between 2008 and 2022 that wasn't normal.

Hammond went on to argue that, strictly from a historical perspective, 5% interest rates make more sense.

“So this new 5% regime that we’re living in, I think that could be sustained, and I think this could be the new normal,” she said

Managing expectations

The Fed entered 2024 under the assumption that it was making notable progress on inflation, so much so that policymakers penciled in three rate cuts this year.

But those expectations changed following a string of hotter-than-expected CPI figures. Last quarter, headline inflation nearly doubled compared to a quarter before.

Top FOMC members, including Raphael Bostic and Michelle Bowman, think inflation is declining much slower than expected and that talks about rate cuts are premature.

In their view, interest rates need to stay higher for longer.

While Fed Chair Jerome Powell generally agrees, he’s shrugged off concerns that the central bank has lost its grip on inflation.

According to several economists, Powell was surprisingly “dovish” following the latest FOMC meeting, signaling that he still prefers to lower rates later this year.

Naomi Fink, a global strategist at Nikko Asset Management, thinks the Fed remains in “wait-and-see mode,” which means that rate cuts cannot be entirely ruled out.

The next FOMC meeting is scheduled for June 11-12.