Economists have been debating whether the high interest rates seen over the past year represent a shift to a fundamentally higher interest rates regime.

The Fed has pushed its benchmark rate to over 5% in the past 14 months to try to get rates high enough to put downward pressure on inflation.

Prior to the pandemic, Williams was a leading researcher on the Fed’s longer-term neutral rate of interest, known among economists as R-star.

It is shorthand for the neutral level of rates that neither boosts or slows things down. Williams helped develop the Fed’s model in 2000 to help estimate the level.

“The current estimates of r-star are similar to those estimated directly before the pandemic,” Williams said.

There are large implications for markets and the economy from this conclusion.

That means that interest rates may return to the long era of ultra-low rates seen in the wake of the 2008 financial crisis.

For the Fed, it raises concern that interest rates would fall to zero in any crisis. This means slower economic growth but also low inflation.

Fed researchers attribute the low interest rates to the aging of the population and slower productivity growth.

R-star is tricky for investors because it is not directly observable and can only be estimated. Some economists think the estimate changes more often than the Fed research suggests.

Williams said the New York Fed is going to post quarterly estimates of r-star on its website.