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Underlying Trends in the U.S. Neutral Interest Rate

Author

Listed:
  • Carlos Carvalho
  • Andrea Ferrero
  • Felipe Mazin

  • Fernanda Nechio

Abstract

After a prolonged decline, U.S. inflation-adjusted interest rates have increased somewhat since the pandemic—possibly implying a higher new normal. As central banks attempt to tame the post-pandemic inflationary bout, whether real rates will fall back closer to pre-pandemic levels will ultimately depend on the trends in their long-term underlying determinants. Estimates suggest that the pre-pandemic downward pressures from global factors and from U.S. population aging have faded, while fiscal conditions continue to put upward pressure on U.S. real rates.

Suggested Citation

  • Carlos Carvalho & Andrea Ferrero & Felipe Mazin & Fernanda Nechio, 2025. "Underlying Trends in the U.S. Neutral Interest Rate," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2025(10), pages 1-6, April.
    • Handle: RePEc:fip:fedfel:99877
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    References listed on IDEAS

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    1. Holston, Kathryn & Laubach, Thomas & Williams, John C., 2017. "Measuring the natural rate of interest: International trends and determinants," Journal of International Economics, Elsevier, vol. 108(S1), pages 59-75.
    2. John C. Williams, 2016. "Monetary Policy in a Low R-star World," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
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