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24/05/24
156
Major Underlying Interest Rate May Increase – Fed’s Waller
According to Federal Reserve Governor Christopher Waller, a key underlying interest rate may in the future increase, although it was too early to say if this will happen.
Waller spoke from prepared notes at an event in Iceland and said there had been much debate about whether or not “R-star” has risen.
R-star is generally seen as the theoretical level of interest rates that neither restricts nor stimulates the economy and keeps inflation steady at the Fed’s target pace. Although it is generally seen as an uncertain figure, it is also believed to be a tool to help evaluate the impact of monetary policy at a given moment.
Fed officials have recently been speculating if R-star is likely to move higher, especially as economic activity in the U.S. has stayed strong despite the lengthy period of high interest rates. If this were the case, then it may signify the beginning of a new era of higher borrowing costs.
One key factor Waller mentioned was increased demand for Treasury debt supply versus issuance. He said if growth in the supply of U.S. Treasuries started to outstrip demand, R-star may experience more upward pressure. He added that only time would tell how big a factor the U.S. fiscal position would be in affecting R-star.
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