# Neutral Rate The **neutral rate of interest** — written *r\** and pronounced "r-star" — is the real short-term interest rate consistent with output at potential and stable inflation: the setting at which monetary policy is neither stimulating nor restraining the economy. It is the benchmark against which any actual policy rate is judged restrictive or accommodative. Its defining property is that it **cannot be observed**. It must be inferred from models, most prominently the Laubach-Williams and Holston-Laubach-Williams estimates published by the Federal Reserve Bank of New York, and the confidence bands around those estimates are wide enough to encompass materially different policy conclusions. FOMC participants also publish their own longer-run rate projections in the quarterly Summary of Economic Projections, which serve as an implicit nominal r\* plus the 2 percent target. Estimates fell steadily from the 1980s through the 2010s, attributed to demographics, slower productivity growth, and global savings patterns, and have drifted higher since 2022. That drift matters directly: if neutral has risen, a policy rate that looks restrictive by pre-pandemic standards may not be restricting anything. ## See also - [[Monetary Policy Transmission Flow]] - [[Federal Funds Rate]] · [[Dual Mandate]] · [[Term Premium]]