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MNI BRIEF: Fed's Williams - Covid Had Modest Effect On R-Star

(MNI) WASHINGTON

The coronavirus pandemic had little effect on estimates of the natural rate of interest, or r-star, which is about 0.5% in the first quarter and forecast to fall to slightly below zero going forward, Federal Reserve Bank of New York President John Williams said Friday.

"The main longer-term consequence from the pandemic period is a reduction in potential output, but the imprint on r-star appears to be relatively modest. Importantly, there is no evidence that the era of very low natural rates of interest has ended," Williams told a conference at the Fed Board of Governors in Washington.

R-star estimates for Canada and the euro area are similarly low, within two-tenths of a percentage point of their estimates in 2019, Williams said. The Fed has resumed its quarterly publication of r-star estimates after suspending it during the pandemic, he added. (MNI INSIGHT: R-Star Falls Out Of Favour As BOE Tightens)

MNI Washington Bureau | +1 202-371-2121 | jean.yung@marketnews.com
MNI Washington Bureau | +1 202-371-2121 | jean.yung@marketnews.com

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