But – just as Leonardo DiCaprio's character in Inception alluded to – it'll take a lot of evidence for a data-dependent Fed to shake off the idea of an ultra-low neutral rate in favor of a more dominant intellectual narrative, according to Brooks.
"What lessons do we learn? Fed consensus views take a while to form, can stick around for years and, ultimately, are data-dependent. For the current debate around 'r-star,' we take away the following," he writes. "First, as Exhibit 2 shows, it’s early days, with lots of potential for this debate to grow into a fully-fledged policy discussion. Second, only a meaningful rise in inflation will put this idea on the back-burner, i.e., a turn in the data against this idea."
This story was provided by Bloomberg News.