r* ("r-star") is the **real short-term interest rate that keeps the economy at full employment with stable inflation** — the gravitational center that actual [[Real interest rates (10-year TIPS yield)|real rates]] pull toward over time. It's the formalization of the "natural rate" concept from *The Price of Time* (the [interest-rate history](https://blogs.cfainstitute.org/investor/2022/06/23/book-review-the-price-of-time/) Philip recommended): below r*, you get inflation; central banks holding rates artificially below it causes malinvestment and zombification. Estimates (Q4 2025) — note the wide model disagreement: - Holston-Laubach-Williams (HLW): **~1%** ([NY Fed](https://www.newyorkfed.org/research/policy/rstar)). - [Lubik-Matthes](https://www.richmondfed.org/research/national_economy/natural_rate_interest) (Richmond Fed): **1.68%**. - "Alternative" r* ([St. Louis Fed](https://www.stlouisfed.org/on-the-economy/2026/may/comparing-fomc-estimate-r-star-alternative-estimates)): **1.43%** — near its highest since the 2008-09 crisis. - Implied nominal neutral rate: **~3.7%** (68% band 2.9-4.5%). Why it matters here: the core thesis of [[Real interest rates may increase in the next 10 years]] is that **AI raises the productivity of capital, which raises r* structurally** — putting a higher floor under all rates. Estimates rising to post-2008 highs are weak early confirmation. A higher r* is the macro reason AI could be a *headwind* for land prices ([[Should you diversify into real estate in the age of AGI?]]). Conventional wisdom (per Tyler Cowen) ran the other way for decades: rates fall as wealth rises, because lending to savers is safer. AI may reverse that. Where to find it: [NY Fed r* page](https://www.newyorkfed.org/research/policy/rstar), [Richmond Fed (Lubik-Matthes)](https://www.richmondfed.org/research/national_economy/natural_rate_interest), [SF Fed economic letters](https://www.frbsf.org).