When US Federal Reserve Chair Jay Powell delivered his major speech at the Jackson Hole conference of central bankers last month, setting out the results of a yearlong review of the Fed’s monetary policy framework, he had stars in his eyes. Not the twinkly kind, but rather the notation that encapsulates the Fed’s views of interest rates, and unemployment. R-star is the equilibrium real interest rate, while u-star is the natural rate of unemployment. Both stars seem to have been falling in recent years, and, unlike in the old song, the Fed has had trouble catching them. Since 2012, when the Fed last restated its ... (full story)