r* and its limitations

In a speech, the Fed's Waller outlined 5 factors that played a role in causing the demand for safe, liquid assets to grow faster than the supply of these assets, pushing down Treasury yields and r*.

This note examines those factors and points out that some assumptions are not necessarily correct, but more importantly Waller misses some more important macro themes that have influenced inflation and interest rates in the last 30 years.

There is a danger of setting inappropriate Monetary Policy if there is too much focus on r* whilst ignoring important macro themes.