How Central Banks Determine the Neutral Rate of Interest

In this episode of Monetary Policy Explained with Fexingo, Lucas and Luna dive into the concept of the neutral rate of interest—often called R-star. They explore why central banks are currently scrutinizing the neutral rate more than ever in July 2026, as the post-pandemic economy reshapes estimates. The hosts break down how the neutral rate is estimated using models from Laubach and Williams, and the Holston-Laubach-Williams approach, referencing specific data from the New York Fed and the San Francisco Fed. They discuss why the neutral rate has been declining since the 1980s, factors like aging demographics and productivity slowdowns, and whether the pandemic has pushed R-star higher. The episode also examines how central banks use the neutral rate as a benchmark for whether monetary policy is accommodative or restrictive. Lucas and Luna unpack the uncertainty around these estimates and why policymakers must navigate with humility. A must-listen for anyone wanting to understand the invisible compass guiding interest rate decisions. #NeutralRate #RStar #CentralBanks #MonetaryPolicy #InterestRates #FederalReserve #LaubachWilliams #HolstonLaubachWilliams #NewYorkFed #SanFranciscoFed #Productivity #Demographics #Inflation #PostPandemic #Economics #FexingoBusiness #BusinessPodcast #MonetaryPolicyExplained Keep every episode free: buymeacoffee.com/fexingo