Neutral Rate (R*) Stance And Macro-Financial Linkages (Fiscal And Stablecoins)
Sources: 1 • Confidence: Medium • Updated: 2026-04-11 17:28
Key takeaways
- Financial innovation and advances in financial technology help allocate capital more efficiently and therefore contribute to long-run growth in human prosperity.
- It is uncertain whether AI will increase potential GDP more than actual GDP because AI both drives investment demand (e.g., GPUs, data centers) and may leak demand abroad due to overseas GPU production.
- Oil-price spikes raise headline inflation immediately but have little inflationary consequence 12–18 months later, so central banks should generally look through oil shocks.
- The notion of “running the economy hot” is imprecise because it implicitly assumes supply capacity is fixed.
- The labor market has been gradually weakening for about three years, including harder job-finding for new entrants and longer unemployment spells between jobs.
Sections
Neutral Rate (R*) Stance And Macro-Financial Linkages (Fiscal And Stablecoins)
- Financial innovation and advances in financial technology help allocate capital more efficiently and therefore contribute to long-run growth in human prosperity.
- Miran places his estimate of the neutral rate near the lower end of the range reflected in the SEP while still within that range.
- Stablecoins add more value for payments than for savings in open capital-market economies, but could drive large adoption in capital-control, unbanked, or high-inflation jurisdictions seeking dollar exposure.
- Miran lifted his policy-rate projection by 50 basis points in the March SEP due to intervening inflation data, placing his projected rate path around neutral.
- Miran estimates the neutral policy rate at roughly 2.5% to 2.75% and assesses current policy as about a percentage point above neutral and thus modestly restrictive.
- Policy should move back to neutral over the course of this year because the economy does not need restraint but also does not need 2021–2022-style stimulus.
Supply-Side Disinflation Channels: Deregulation, Capex Incentives, And Ai
- It is uncertain whether AI will increase potential GDP more than actual GDP because AI both drives investment demand (e.g., GPUs, data centers) and may leak demand abroad due to overseas GPU production.
- AI, deregulation, and capital deepening can expand supply capacity so that faster demand growth is less inflationary.
- Two main monetary-policy-relevant channels of supply-side policy are lowering prices via lower production costs and competition, and changing inflation pressure via the output gap.
- Easing regulations can raise potential GDP more than actual GDP because firms can increase utilization of existing capital without requiring much new investment demand.
- The 1990s telecom-driven productivity boom plausibly pushed both demand (via investment activity) and supply (via higher productivity) such that the net output-gap effect could be roughly neutral.
- Recent tax legislation included full expensing for equipment and full expensing for R&D, which Miran says incentivize investment in productive capital.
Policy Lags And Oil-Shock Reaction Function
- Oil-price spikes raise headline inflation immediately but have little inflationary consequence 12–18 months later, so central banks should generally look through oil shocks.
- Higher oil prices are more likely to weaken the economy 12–18 months later by diverting household spending to gasoline and thus can raise unemployment rather than generate persistent inflation.
- Monetary policy affects growth, unemployment, and inflation with long lags of roughly 12–18 months, so policy should be set based on that horizon.
- Inflation-swap forward inflation expectations one to three years out have been largely unaffected by recent oil developments, and many are lower than at the January FOMC meeting.
- Miran raised his current-year headline inflation projection to 2.7% because of an oil shock.
Inflation Measurement And Interpretation
- The notion of “running the economy hot” is imprecise because it implicitly assumes supply capacity is fixed.
- Measured inflation is overstated because portfolio management services measurement quirks may be biasing inflation up by roughly 30–40 basis points.
- Inflation results when demand is pushed up while supply is held constant, whereas pushing supply outward allows demand to grow without generating inflation.
Labor Market Cooling And Wage-Driven Inflation Risk
- The labor market has been gradually weakening for about three years, including harder job-finding for new entrants and longer unemployment spells between jobs.
- A wage-price spiral is unlikely because the labor market has been cooling and wage pressures have been declining.
Watchlist
- It is uncertain whether AI will increase potential GDP more than actual GDP because AI both drives investment demand (e.g., GPUs, data centers) and may leak demand abroad due to overseas GPU production.
Unknowns
- What is the exact methodology and empirical evidence for the claimed 30–40 bp upward bias in inflation from portfolio management services, and how does an adjusted series compare to headline CPI/PCE over time?
- Do alternative measures of medium-term inflation expectations (beyond the cited forward inflation swaps) remain anchored through oil-price volatility, and for how long?
- How large and durable is the claimed labor-market weakening, and is it visible in broad, standardized indicators rather than subgroup anecdotes (new entrants, job-finding difficulty)?
- What is the net effect of AI on the output gap over the next 12–36 months: does AI raise potential output faster than it raises actual demand, or the reverse?
- What are the actual realized effects of recent deregulation on prices, markups, and utilization, and how do these compare to the stated annual disinflation estimates?