⌛ Did you miss ProPicks’ 13% gains in May? Subscribe now & catch June’s top AI-picked stocks early.Unlock Stocks

Low Rates Could Get Even Lower, Senior Central Bankers Warn

Published 01/05/2020, 04:44 PM
Updated 01/05/2020, 05:11 PM
© Reuters.  Low Rates Could Get Even Lower, Senior Central Bankers Warn

(Bloomberg) -- The already low level of interest rates in the U.S. and the rest of the industrial world could fall further, three senior central bankers said on Sunday.

Speaking at the American Economic Association’s annual meeting, Federal Reserve Bank of New York President John Williams (NYSE:WMB), European Central Bank chief economist Philip Lane, and Bank of England Deputy Governor Ben Broadbent all saw a possibility that so-called R star -- the neutral level of interest rates that neither spurs nor restricts growth in their economies -- might drop in the future.

“You could see R star go lower because of demographics,” Williams told the audience in San Diego.

Estimates of R star vary widely. Fed policy makers generally peg it at about 2.5% for the short-term federal funds rate that the U.S. central bank targets. The neutral rate in the euro area and Japan is commonly thought to be lower.

A variety of structural forces -- aging populations and sluggish productivity growth among them -- are reckoned to have been pushing down the neutral rate in industrial countries for years. That “doesn’t rule out a scenario where it gets even lower,” Lane said.

While admitting that’s possible, Broadbent voiced hope that equilibrium rates would rise back to levels that have prevailed historically. “I do hope that over the next decade or two” that might happen, he said.

Williams, who’s spent much of his career studying the concept of R star, cast some doubt over that optimistic view.

“There are many stages of grief” experienced by economists and policy makers who’ve been forced over the years to grudgingly accept the downward trend in interest rates, Williams said.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.