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Waller On Longer Term Neutral Rate Outlook

FED

[Paraphrasing his reply from the Q&A at the American Enterprise Institute]


So much chatter on it. If you look at the real return of safe government liquid debt, it’s been falling for forty years. The rate of return of capital is constant (albeit volatile). So there’s something unique about safe liquid govt debt and treasuries in particular. Whenever people tell me it’s going to bounce back up, what do you think is driving it back up? Just a couple weeks ago we heard long end Treasury yields going up because of a higher r* but it’s now fallen back six tenths, has r* fallen back in three weeks? They’re really not plausible stories. You've got to do a lot more work on estimating and understanding the causes.


Earlier on when asked about the recent strength of GDP growth.

*WALLER: I WAS STUNNED BY THIRD-QUARTER GDP DATA - bbg
*WALLER: FORECASTS SHOW FOURTH-QUARTER GDP GROWTH SHOULD BE 1-2% - bbg
Whatever we had for Q3 is an anomaly. Some pulling forward of investment from Q4.

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