Why Central Banks Are Watching the Neutral Rate of Interest

In this episode, Lucas and Luna dig into the neutral rate of interest—often called R-star—and why it has become a fixation for central bankers. They walk through the concept of the 'real' neutral rate, explain why it's invisible and must be estimated, and look at recent Fed research suggesting R-star may have risen to around 1.2 percent, up from pre-pandemic estimates near zero. The hosts explore what that shift means for monetary policy today, including whether rates are actually as restrictive as they seem. Using the New York Fed's Holston-Laubach-Williams model as a concrete example, they unpack the uncertainty around these estimates and what happens when policymakers target a moving target. This episode avoids repeating earlier coverage of the output gap, wage-price spirals, or the yield curve, offering a fresh take on a concept that quietly shapes every central bank decision. #NeutralRate #RStar #MonetaryPolicy #CentralBanks #FederalReserve #InterestRates #Economics #RealRates #HolstonLaubachWilliams #NewYorkFed #Inflation #Growth #PolicyRate #RestrictivePolicy #MacroEconomics #FexingoBusiness #BusinessPodcast #FexingoEconomics Keep every episode free: buymeacoffee.com/fexingo