Neutral Interest Rate
a.k.a. Neutral rate, Natural rate of interest, R-star, r*
The interest rate that neither speeds up nor slows down the economy; a central bank's invisible target.
The neutral interest rate, written r* and spoken "r-star", is the rate where monetary policy is neither pressing the gas nor the brake. Set rates above it and you are slowing the economy down; below it and you are juicing it.
The catch: nobody can measure it directly. Economists estimate it with models, and their guesses differ and drift over time. Yet it shapes everything, because when a central banker says rates are "restrictive", they mean "above neutral". When the market's guess of r* shifts, the expected path of rates, and the currency with it, shifts too.
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