// definition
r*
Natural real interest rate
Short definition
A real short-term interest rate consistent with an economy operating at potential and stable inflation. It is estimated through a model and varies with economic conditions. The longer-run dot plot reports a nominal policy rate: a real comparison requires approximately subtracting expected inflation over the same horizon. That longer-run nominal projection and a current estimate of r* therefore address different questions.
risk atlas
Knowledge map
Intuition
Compare real rates over matching horizons, with an explicit inflation assumption.
Formula
nominal neutral rate ≈ natural real rate + expected inflationRelated analyses
Related guides
Primary sources
- New York Fed, Measuring the Natural Rate of InterestDefinition of the real short-term rate estimated by the LW and HLW models.
- Lael Brainard, Federal Reserve, 5 September 2017Distinguishes the SEP longer-run nominal projection from its real counterpart after inflation.