Can Fiscal, AI, or Monetary News Explain the Rise in r∗?

Jens Christensen and Glenn Rudebusch

No 2026-19, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: Following decades of secular decline, many estimates of r∗—the natural or steady-state short-term real interest rate—have risen roughly 1 percentage point since 2020 in the United States. The most prominent explanations attribute this reversal to heightened expectations of rising government debt and faster productivity growth from artificial intelligence (AI). However, a high-frequency event study finds that news about fiscal and AI developments does not explain this increase. Furthermore, contrary to earlier evidence that persistent shifts in longer-term yields occurred around monetary policy meetings, we find that monetary policy news does not account for the recent rise in r∗.

Keywords: r star; fiscal policy; artificial intelligence; monetary policy (search for similar items in EconPapers)
JEL-codes: C32 E43 E52 G12 (search for similar items in EconPapers)
Pages: 32
Date: 2026-08-27
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DOI: 10.24148/wp2026-19

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