Fed's Williams Says Low Neutral Interest Rate Era Is Not Over

Summary:

Federal Reserve Bank of New York President John Williams said Monday that the era of persistently low underlying interest rates does not appear to be over, based on his reading of the data.

Williams, whose comments came from the text of a speech prepared for a conference in Mexico City, spoke about R-Star, which is an estimate of the interest rate that has a neutral impact on the economy. He did not comment on the outlook for monetary policy in the prepared speech.

Noting the long-running factors affecting underlying interest rates, Williams said, "The global demographic and productivity growth trends that pushed R-Star down have not reversed."

Growth-adjusted R-Star for the U.S., Euro area, U.K. and Canada is around 0.5% and that is similar to the pre-pandemic period, Williams said.

“The era of low R-Star appears far from over,” Williams said.

Some events in the last several years have made estimating R-Star challenging, such as surging inflation related to the pandemic. That prompted aggressive interest increases by central banks around the world.

Fed officials have been steadily raising estimates of their longer-run interest rate target, suggesting a fundamental shift in the economy toward higher borrowing costs.

Williams’ comments suggested that low rates will return at some point given the economic forces that have led to a low R-Star estimate.

But he also noted in his remarks that “policymakers are well advised to avoid placing too great confidence in precise estimates” of things like R-Star given uncertainty around some of the economic factors used to divine the value.

Source: Yahoo Finance

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President Donald Trump fired Federal Reserve Governor Lisa Cook late Monday, a sharp escalation in his battle to exert greater control over what has long been considered an institution independent from day-to-day politics.

Trump said in a letter posted on his Truth Social platform that he is firing Cook because of allegations that she committed mortgage fraud. Bill Pulte, a Trump appointee to the agency that regulates mortgage giants Fannie Mae and Freddie Mac, made the accusations last week.

Pulte alleged that Cook had claimed two primary residences -- in Ann Arbor, Michigan and Atlanta -- in 2021 to get better mortgage terms. Mortgage rates are often higher on second homes or those purchased to rent.

The announcement came days after Cook said she wouldn’t leave her post despite Trump previously calling for her to resign. The Fed's board has seven members, meaning Trump's move could have deep economic and political ramifications.

Trump said in announcing the move that he had the constitutional authority to remove Cook, but doing so will raise questions about control of the Fed as an independent entity.

The firing is likely to touch off a legal battle and Cook could be allowed to remain in her seat while the case plays out. Cook would have to fight the legal battle herself, as the injured party, rather than the Fed.

It is the latest effort by the administration to take control over one of the few remaining independent agencies in Washington. Trump has repeatedly attacked the Fed’s chair, Jerome Powell, for not cutting its short-term interest rate, and even threatened to fire him.

Forcing Cook off the Fed’s governing board would provide Trump an opportunity to appoint a loyalist. Trump has said he would only appoint officials who would support cutting rates.

Source: Yahoo Finance

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Daniel Carter

Central Bank

Economic

Federal Reserve Bank of New York President John Williams said the US economy's neutral interest rate may not be much different than before the pandemic, given the structural factors that have kept a lid on rates haven't gone away.

"The global demographic and productivity growth trends that pushed r-star down have not reversed," Williams said Monday in remarks prepared for a conference hosted by Mexico's central bank. Economists often refer to the so-called neutral interest rate — where it should be when monetary policy isn't fighting unemployment or inflation — as "r-star," based on the mathematical notation used to represent it in economic models.

Referring to statistical estimates of the neutral rate from early 2025 showing it has "not meaningfully rebounded," Williams said "the era of low r-star appears far from over."

In a speech Friday, Fed Chair Jerome Powell opened the door to a rate cut at the central bank's next meeting in September amid signs of weakness in the job market. Fed officials have so far this year held their benchmark federal funds rate steady on concerns that the Trump administration's tariffs would boost inflation.

With the target range for the federal funds rate currently between 4.25% and 4.5%, varying estimates of the neutral rate among policymakers will likely fuel a debate over how far and how quickly to bring rates down. Projections issued in June showed the median estimate of the neutral rate among Fed officials was 3%, up from 2.5% before the pandemic. But the range of estimates varied between 2.5% and almost 4%.

Williams didn't give his own estimate of the neutral rate in his prepared remarks, nor did he comment on the outlook for policy or the economy. Last month, he said a "modestly restrictive stance of monetary policy is entirely appropriate" given the inflation threat posed by tariffs.

Source: Bloomberg Europe

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Economic

Political

Donald Trump met South Korean president Lee Jae Myung on Monday at the White House, just weeks after both countries struck a last-minute trade deal.

Trump opened the talks by saying the U.S. is behind Lee "100%." The meeting came less than two months after Lee took office in June through a snap election.

Their discussion covered national security, trade, and a shipbuilding agreement. Trump said the U.S. plans to buy ships from South Korea. The two leaders also talked about North Korea and peace talks, with Lee asking Trump to help stabilize the Korean Peninsula.

Trump questions South Korea, backs Lee anyway

Lee called the Oval Office "bright and beautiful" when he arrived, signaling a smooth atmosphere. But just hours earlier, Trump had posted online that South Korea was going through a "purge" or even a "revolution." That came after news broke about corruption investigations involving former first lady Kim Keon Hee, including searches at churches and at Osan Air Base.

"It didn't sound to me like South Korea," Trump said during the meeting.

Despite that, Trump had no issues sitting down with Lee and discussing plans moving forward. Lee brought up peace on the Korean Peninsula and even pitched the idea of building a Trump Tower in North Korea. Trump said he has a "great relationship" with Kim Jong Un and is ready to meet him again. He added, "We can do big progress with North Korea."

There was no schedule or plan confirmed for that future meeting, but Trump was clearly open to making it happen.

Trade deal limits tariffs, raises investment questions

On the trade front, South Korea and the U.S. had recently agreed to a deal that capped tariffs at 15% on Korean exports. That figure was below the 25% threat Trump had made earlier. Still, Trump didn't signal any willingness to lower the number more.

"I hear they want to renegotiate the deal, but that's OK, I don't mind that," Trump said. "That doesn't mean they're going to get anything, but I don't mind."

He also repeated his previous claim that South Korea would provide $350 billion for U.S.-controlled investments. "Selected by myself, as President," Trump added. That promise has raised questions. It's still unclear how that $350 billion would be structured or if it's even legally enforceable.

The shipbuilding part of the talks was pitched as a win, with Trump stating the U.S. would purchase ships directly from South Korean companies. No delivery numbers or companies were named.

This was Lee's first big foreign meeting since taking office. It was seen as a test of his ability to handle tense U.S. diplomacy. He didn't make many bold statements publicly. Most of the remarks came from Trump, who dominated the headlines again.

Source: CryptoSlate

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Cryptocurrency

Bitcoin (BTC) consolidates near current levels as capital inflows extend along the risk curve toward Ethereum and broader altcoins, according to Bitfinex Alpha’s Aug. 25 report.

The report noted that the shift represents a measured rotation of institutional liquidity following Bitcoin’s all-time high formation.

Bitcoin declined 4.5% from the weekly open on Aug. 18 until Aug. 22, sliding to local range lows as investors de-risked ahead of the Federal Reserve’s Jackson Hole symposium.

The asset reached $111,990 amid renewed weakness in US spot exchange-traded funds (ETFs) flows, with Bitcoin ETFs recording $1.18 billion in net outflows over the week. As of press time, BTC lost the $110,000 threshold and is priced at $109,795.71.

Federal Reserve Chairman Jerome Powell’s dovish remarks at Jackson Hole triggered a sharp rebound in risk assets, sparking a broad-based short squeeze across crypto.

Ethereum led the recovery, surging to a new all-time high of $4,958.70 on Aug. 24 and demonstrating its role as a liquidity driver for institutional markets.

Spot ETH ETFs registered $197 million in outflows on Aug. 18 alone, marking the third-largest daily exit on record. However, Ethereum treasury companies absorbed substantial selling pressure, with preliminary estimates suggesting meaningful institutional support.

Corporate treasuries, including SharpLink Gaming, Bitmine Immersion Technologies, and BTCS, accelerated accumulation, with on-chain treasury balances exceeding $10 billion. The report noted that the rotation reflects softer capital inflows into Bitcoin following its Aug. 14 all-time high of $123,640.

Bitcoin’s realized cap expanded at 6% per month during the current move, compared to 13% monthly growth during late-2024 breakouts above $100,000, indicating more cautious investor appetite.

Macro signals remain supportive

Global liquidity conditions remain supportive, with the combined M2 money supply from major central banks approaching $100 trillion. The structural upward trend in global liquidity reinforces the long-term bullish case for digital assets, though capital allocation has become more selective.

Solana climbed above $200 to reach $212.60 as the broader digital asset class pushed higher alongside equities, reflecting tightening correlations between crypto and traditional risk assets. Meanwhile, network development continues to advance, showcased by DBS Bank’s recent tokenized note issuance on Ethereum.

In this backdrop, Bitfinex expects Bitcoin to remain range-bound while Ethereum attracts heightened institutional demand, mirroring Bitcoin’s dynamic from early 2024.

The report anticipated more significant capital rotation into higher-risk altcoins later in the cycle, with broader market re-rating dependent on renewed Bitcoin ETF inflows and new altcoin investment vehicles.

Source: Cryptoslate

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Political

Economic

The Trump administration is working to halt development of an offshore wind project planned near Maryland, in the latest escalation of the president’s war on the clean energy source he loathes.

The Interior Department plans to move to remand and vacate a permit granted to the $6 billion Maryland Offshore Wind Project, according to a court filing dated Friday. The project — which is being developed by US Wind and will consist of as many as 114 wind turbines about 10 nautical miles off the coast of Ocean City, Maryland — was approved by the Biden administration in 2024 and was set to begin construction next year.

President Donald Trump has aggressively and specifically targeted wind power in his larger crusade against clean energy, often characterizing it as a bird-killing eyesore. On his first day in office, Trump indefinitely halted the sale of new offshore leases and his administration has since paused permitting of all developments on federal lands and waters.

His latest salvo underscores the risks faced by US developers of offshore wind projects who can only build in federal waters controlled by Trump. The Interior Department on Friday halted work on an 80% complete offshore wind farm being constructed off the coast of Rhode Island by Denmark’s Orsted A/S, sending shares of the company to record lows. In April, Secretary of the Interior Doug Burgum halted work on Equinor ASA’s $5 billion Empire Wind farm off the coast of New York, but reversed the decision a month later after the administration reached a deal with New York Governor Kathy Hochul to open the way for new gas pipelines to be built in the state.

US Wind, which is owned by funds managed by Apollo Global Management and a subsidiary of Toto Holding SpA, was the tenth offshore wind project to recieve approval from the Biden administration, which at the time said the project was part of a plan to build offshore wind capacity equivalent to roughly 30 nuclear reactors.

“We remain confident that the federal permits we secured after a multi-year and rigorous public review process are legally sound,” Nancy Sopko, US Wind’s vice president of external affairs said in a statement.

Environmental groups said the unprecedented moves would have a devastating effect on US workers, electricity consumers and investment in America.

“The Trump administration’s attacks on affordable energy just keep coming,” said Pasha Feinberg, an offshore wind specialist with the Natural Resources Defense Council. “Americans were promised cheaper electricity, but nearly every day this administration is trying to drive those costs up.”

Source: Bloomberg

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Stocks

Economic

Wall Street stocks ended lower on Monday as investors parsed the outlook for U.S. interest rates and looked ahead to AI chipmaker Nvidia's quarterly earnings this week while digesting a rally on Friday that lifted the Dow Jones Industrial Average to a record high close.

On Friday, stocks jumped after U.S. Federal Reserve Chair Jerome Powell hinted at the Jackson Hole Symposium that an interest-rate cut could be considered at the central bank's September meeting, citing recent labor market weakness."The market has a Jackson Hole hangover," said Jake Dollarhide, CEO of Longbow Asset Management in Tulsa, Oklahoma. "Investors are taking a little bit of a breather."

The Personal Consumption Expenditures Price Index - the Fed's preferred inflation gauge - is due to be released on Friday, while official nonfarm payrolls data is expected next week. The reports will be crucial, especially after Powell said a rate cut was not certain.

"The focus right now is the labor market," said Brian Klimke, investment director at Cetera Investment Management.

"We have the job market that's rolling over a little bit and the economy is weakening, so the Fed needs to act sooner than later and they're seeing it too."Nvidia (NVDA.O) climbed 1% ahead of its quarterly report on Wednesday, which will be one of Wall Street's most closely watched events of the week and a crucial test of the scorching AI trade.

With Nvidia making up about 8% of the S&P 500, results of the world's most valuable company affect vast numbers of Americans who use index investment funds to save for retirement.

"This is an incredibly important event from a market participant standpoint," said Michael Green, portfolio manager at Simplify Asset Management.Powell's comments on Friday nudged major brokerages to revise their expectations, with Barclays, BNP Paribas and Deutsche Bank currently seeing a 25-basis-point reduction in borrowing costs next month.Traders now see an 84% chance of a Fed rate cut in September, according to CME Group's FedWatch tool. Remarks from policymakers John Williams and Lorie Logan later in the day will be scrutinized to see if they share Powell's policy outlook.

The S&P 500 declined 0.43% to end the session at 6,439.32 points.

The Nasdaq declined 0.22% to 21,449.29 points, while the Dow Jones Industrial Average declined 0.77% to 45,282.47 points.

Nine of the 11 S&P 500 sector indexes dropped, led lower by consumer staples (.SPLRCS), down 1.62%, followed by a 1.44% loss in health care (.SPXHC). Friday's optimism helped the blue-chip Dow close at a record high for the first time since December 2024, and the benchmark S&P 500 logged its strongest one-day gain since May.

On Monday, Jefferies became the latest brokerage to raise its year-end target for the S&P 500.

Beverage company Keurig Dr Pepper (KDP.O) tumbled 11.5% after saying it would buy JDE Peet's (JDEP.AS) for $18.4 billion in cash.

Furniture retailers RH (RH.N) and Wayfair (W.N) each declined more than 5% after U.S. President Donald Trump said on Friday his administration would investigate furniture import tariffs.

Intel (INTC.O) fell 1% after Trump said the U.S. government was taking a stake in the chipmaker. He also said he would make other deals similar to the one with Intel.

Volume on U.S. exchanges was relatively light, with 14.2 billion shares traded, compared to an average of 17.1 billion shares over the previous 20 sessions.

Declining stocks outnumbered rising ones within the S&P 500 (.AD.SPX) by a 4.0-to-one ratio.

The S&P 500 posted 17 new highs and no new lows; the Nasdaq recorded 125 new highs and 39 new lows.