Fed Gov. Waller is speaking and says:
- US financing pressures may contribute to a rise in the longer run neutral rate in coming years.
- Only time will tell how large a factor US fiscal position will be in affecting neutral rate.
- If US treasury supply begins to outstrip demand, this will put upward pressure on neutral rate.
- Changes in banking regulations, role of central banks, and sovereign wealth funds and liberalization of capital markets not likely to have significant impact on raising neutral rate.
- Demographics will continue to put downward pressure on neutral rate.
- Demand for us safe, liquid assets outpacing supply over past 40 years has pushed down treasury yields and neutral rate.
- US dollar remains by very large margin the world's reserve currency.
- Recent events point more to increase influence for dollar than any significant decline.
- Real return on capital not appropriate interest rate to use to gauge longer run neutral rate.
- Real 10 year treasury yield a good, real world proxy for theoretical value of neutral rate.
- Need to be humble in deciding numerical value of neutral rate.
From the comments, Waller acknowledges that the US benefits from being the world reserve currency with respect to the neutral rate, but also acknowledges that there are other things pushing the neutral rate higher. At the end of the day it is more of a guess as to what it is (must be humble) as the dynamics of the calculus change over time.
