speech the neutral rate : the pole - star casts faint light luci ellis [ * ] assistant governor ( economic ) keynote address to citi australia & new zealand investment conference sydney – 12 october 2022 thanks to citi for the opportunity to speak today. my topic is the so - called ‘ neutral interest rate ’. the concept has attracted a lot of attention in recent months. it ’ s no surprise why. until earlier this year, policy interest rates – in australia, the cash rate target – had been held at very low levels to support economies through the covid - 19 pandemic and into recovery. such low levels are understood to be unusual – they are an emergency setting for extraordinary times. but now, with unemployment close to a 50 - year low and inflation currently very high, policy stimulus is no longer needed. it ’ s natural in these circumstances to think of policy getting back to a ‘ more normal ’ setting – although one could argue that times are still far from normal, just in a different way to the previous two years. regardless, it ’ s understandable that in recent months people have been wondering what ‘ normal ’ policy might be. to the extent it means ‘ no longer providing stimulus ’, this then becomes a question of what ‘ neutral ’ policy might mean. economic theory contemplates a riskfree or policy rate that can be considered ‘ neutral ’. this rate – whatever it is – is usually labelled ‘ r * ’. today i ’ m going to talk about how a neutral rate might be defined and measured, what might determine its level, and how we might respond, knowing that it could change. in doing so, i want to emphasise that the neutral interest rate is a long - run concept. there are other ways of thinking about this ; some people make a distinction between ‘ long - run r * ’ and ‘ short - run r * ’. [ 1 ] what is it? when the policy interest rate is low enough, it stimulates demand. and when it is high enough, it restrains demand. somewhere in the middle, there must be a rate that is neither contractionary nor expansionary. that ’ s one way to frame the neutral rate. certainly that ’ s how we have defined it publicly in the past. dig a little deeper, though, and there are some subtleties in this definition that are worth unpacking. consider what it means for policy to be stimulatory : growth would tend to increase

##rkfed. org / newsevents / speeches / 2020 / sin201020 2 / 5 20 / 10 / 2020 the federal reserve ’ s corporate credit facilities : why, how, and for whom - federal reserve bank of new york that in making an assessment of credit eligibility, we broadened our use of ratings to include perspectives from all nationally recognized statistical rating organizations. providing broad access also applies to the service providers that support the facilities. in early september, we announced the expansion of counterparties to the smccf, including several smaller and minority - owned broker - dealers. 13 in early october, we announced the launch of our process to re - bid our engagement with the facility ’ s investment manager. this process has begun with the ccf cash management role, and in the coming weeks and months we will re - bid the remainder of the role. together, these efforts allow us to expand the reach of our operations while making tangible progress on our commitments to diversity and inclusion, including to minority -, women -, and veteran - owned firms. let me now turn to transparency and accountability. in the spirit of these principles, we have reported to the public in near real - time our market activity, including the details of every smccf transaction. our holdings are publicly reported on a weekly basis through the fed ’ s h. 4. 1 release. every month the fed publishes the full holdings in a detailed congressional report. we also provide the attributes of the broad market index, including detailed issuer - level weights. aside from portfolio activity, we have also disclosed the ccf ’ s legal agreements. on the new york fed ’ s website, you can find all documentation with the department of treasury that governs the operation of the facilities, as well as all contracts with external vendors. on the latter, we remain committed to disclosing all fees to service providers as they are paid. impact on credit conditions as you all know, corporate credit conditions have recovered substantially from the worst strains of march. research from the new york fed estimates that, within the first three months following the ccf announcement, credit spreads retraced about 90 percent toward pre - pandemic levels, with two - thirds of the improvement occurring on facility announcement dates ( i. e., before purchases even began ), and that half of the improvement in bid - ask spreads since the peak in march occurred on the initial announcement date itself. 14 this provides strong evidence that the market found credible the design