Fed's Waller ponders future path of underlying interest rates
Federal Reserve Governor Christopher Waller said on Friday it's possible that a key underlying interest rate that influences the potency of monetary policy may rise in the future after years of declines, but it's too soon to say if that will happen.
«There has been a lot of debate during the past year as to whether or not 'R-star' has increased,» Waller said in a speech to the Reykjavik Economic Conference in Iceland.
R-star is the interest rate that neither stimulates nor restricts the economy when inflation is at the U.S. central bank's target. While it's a rate that moves slowly and can't be measured with precision and is bound by uncertainty, the concept nevertheless helps explain how stimulative or restrictive monetary policy is at a given time.
Waller said R-star has seen a long-term decline due to a number of factors. Among them have been strong demand for U.S. government debt in a world where global trading terms had been liberalizing, regulation changes, falling inflation and less volatile economic activity. But with demographic shifts and other forces at play, including accelerated U.S. Treasury borrowing, many officials have wondered if R-star will rise in the future.
If it did, it would herald a new higher interest rate environment and suggest monetary policy will feature higher short-term borrowing costs than the rock-bottom levels seen in years preceding the COVID-19 pandemic. That said, some Fed officials, acknowledging the challenge of measuring R-star, have argued it's not a key factor in their
