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Story summary
- The Federal Reserve faces uncertainty about the neutral rate, r-star, now estimated between 0% and 1.4%.
- Demographic changes, inflation spikes, and geopolitical shifts may influence r-star’s trajectory.
- Some Fed officials say rates are above neutral and others advocate further cuts.
- As projections update, market economists warn that excessive cuts could cause overheating in 2026.
- The debate reflects the difficulty of setting borrowing costs today.
