Waller Speaks Out: Productivity Growth Could Push Up Neutral Interest Rates

Background and Perspective

In a recent speech, Federal Reserve Governor Christopher Waller discussed the potential link between productivity growth and the neutral interest rate. He suggested that if productivity continues to rise, the neutral interest rate might also increase.

Significance of the Neutral Rate

The neutral interest rate is a key benchmark in monetary policy, representing the level that neither stimulates nor restricts economic activity. Rising productivity could boost potential economic output, potentially pushing the neutral rate higher.

Implications for Policy

Waller's remarks imply that if productivity growth persists, the Fed may need to reassess its long-term interest rate targets. This could have significant implications for future monetary policy decisions.

• Productivity gains may lead to a higher neutral interest rate.
• The neutral rate is a crucial benchmark for policy.
• The Fed might need to adjust long-term interest rate assumptions.