STOP THE FED BEFORE IT KILLS AGAIN:

The natural interest rate - or neutral interest rate - is the real interest rate in the U.S. economy that neither stimulates nor contracts the economy. It is the theoretical "perfect" real interest rate to support the economy at full employment while keeping inflation constant. 

The natural interest rate is commonly denoted as R*. 

While R* is not observable, there are multiple well-proven statistical models to estimate it. The most well-established of these is the Holston-Laubach-Williams (HLW) model. That model uses a variety of economic signals to estimate R* on a quarterly basis. 

The most recent estimate from the HLW model is the Q1 estimate of 0.58%. In other words, the natural interest rate for the U.S. economy is presently estimated to be about 0.6%. 

In the 1960s, R* was around 6%. But as economic productivity improved and natural inflationary pressures eased, it trended downward through the end of the 20th Century. Following the 2008 financial crisis, R* collapsed and stabilized around ultra-low levels of ~0.7%. Briefly, after the COVID-19 pandemic, R* spiked above 1%. And now it has fully returned to (and is actually below) pre-pandemic levels. 

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