MNI: Fed’s Waller Says Large Deficits Could Push Up R-Star
Fed governor says U.S. is on unsustainable fiscal path, which could raise neutral rates.
Rising U.S. government deficits could contribute to a higher neutral rate of interest in the future, Federal Reserve Governor Chris Waller said Friday in remarks that did not directly address the currently outlook for monetary policy or the economy.
“If the growth in the supply of U.S. Treasuries begins to outstrip demand, this will mean lower prices and higher yields, which will put upward pressure on r-star,” Waller said.
“It is probably not news to many people that the U.S. is on an unsustainable fiscal path. … All of these financing pressures may contribute to a rise in r* in coming years, but only time will tell how large a factor the U.S. fiscal position will be in affecting r-star.” (See MNI INTERVIEW: Macklem Sees Time To React To Neutral Rate Rise)