SF Fed’s Williams: Despite the Strong Economic Outlook, Data Indicates Long-Term R-Star Will Remain Low

May 15, 2018

  • Williams says he expects “the expansion to continue, with growth averaging around 2.5 percent over this year and the next.”
  • Says “the longer-run drivers still point to a ‘new normal’ of a low r-star and relatively low interest rates.”
  • Agrees with midpoint of FOMC projections that “a total of three to four rate increases this year and further gradual rate increases over the next two years… is the right direction for monetary policy.”

Minneapolis, Minnesota – Today, John C. Williams, President and CEO of the Federal Reserve Bank of San Francisco, spoke to a meeting of the Economic Club of Minnesota about the fortunes of r-star and gave his views on how it will affect monetary policy.

Williams said that “When put into a historical context, r-star stands at an incredibly low level—in fact, a full 2 percentage points below what a normal interest rate looked like just 20 years ago.” He highlighted that this challenge is not unique to the US, but a trend that’s seen across a number of developed economies. Williams said that three key global developments have caused r-star to come down: “changes in demographics, a slowdown in productivity growth, and heightened demand for safe assets.”

He said that recently “some economists and central bankers have pointed to signs that the fortunes of r-star are set to rise” but that he doesn’t share their optimism. Williams noted that while the US and global economic outlook are very positive, “it’s important to distinguish between the current strong economic conditions and the key longer-run drivers underpinning interest rates.” He concluded by noting that his opinions are always led by the data, but that for the moment “r-star continues to shine brightly, guiding monetary policy, but hold steady, low on the horizon.”


Kevin Sajdak
Federal Reserve Bank of San Francisco
(415) 314-2948


The Federal Reserve Bank of San Francisco, with branch offices in Los Angeles, Seattle, Salt Lake City, and Portland, and a cash processing office in Phoenix, provides wholesale banking services to financial institutions throughout the nine western states. As the nation’s central bank, the Federal Reserve System formulates monetary policy, serves as a bank regulator, administers certain consumer protection laws, and is fiscal agent for the U.S. government. Follow us on Twitter at twitter.com/sffed.