Federal Reserve Governor Christopher Waller has sparked discussions about a possible change in the interest rate environment. R-star, a theoretical rate that reflects a neutral monetary policy stance, may be on the rise after years of decline.
Waller acknowledges several factors contributing to the past decline of R-star, including high demand for US government debt. However, he suggests this trend might be reversing due to factors like increased US Treasury borrowing.
This shift, if it occurs, could usher in a new era of higher borrowing costs. While acknowledging the uncertainty surrounding R-star, Waller highlights its potential influence on future monetary policy decisions. The Federal Reserve may need to adjust its approach if R-star increases, potentially leading to higher short-term interest rates compared to recent years.
Source: Reuters