Fed's Waller points to forces that may lift future underlying interest rates
- Federal Reserve Governor Christopher Waller said on Friday it's possible that a key underlying interest rate may rise in the future after years of declines, but it's too soon to say if that will happen.
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.
A key factor in the decline of R-star, Waller noted, has been higher demand for Treasury debt issuance compared to supply. But ballooning U.S. government borrowing coupled with other factors could be changing that calculus. "Notwithstanding the drumbeat of warnings from some that the U.S. dollar is in danger of losing its primacy in global trade and finance, it remains by a very large margin the world's reserve currency," he said."U.S. government debt, likewise, remains the primary form of low-risk asset, which is reflected in the huge stock of Treasury securities held as foreign exchange reserves around the world.
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