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Can Fiscal, AI, or Monetary News Explain the Rise in r∗?

Author

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  • Jens H. E. Christensen
  • Glenn D. Rudebusch

Abstract

Following decades of secular decline, many estimates of r∗—the natural or steady-state short-term real interest rate—have risen roughly 1 percentage point since 2020 in the United States. The most prominent explanations attribute this reversal to heightened expectations of rising government debt and faster productivity growth from artificial intelligence (AI). However, a high-frequency event study finds that news about fiscal and AI developments does not explain this increase. Furthermore, contrary to earlier evidence that persistent shifts in longer-term yields occurred around monetary policy meetings, we find that monetary policy news does not account for the recent rise in r∗.

Suggested Citation

  • Jens H. E. Christensen & Glenn D. Rudebusch, 2026. "Can Fiscal, AI, or Monetary News Explain the Rise in r∗?," Working Paper Series 2026-19, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfwp:103705
    DOI: 10.24148/wp2026-19
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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