Odd Lots Podcast Summary
Episode: Why the Price of Money Surged in the Last 6 Years
Release Date: October 9, 2025
Hosts: Tracy Alloway & Joe Weisenthal (Bloomberg)
Guests: Tom Orlik (Chief Economist, Bloomberg Economics), Jamie Rush (Director of Global Economics, Bloomberg Economics)
Topic: The drivers behind the recent surge in the "price of money"—the real, long-term interest rate—and the evolving concept of the neutral rate of interest ("R star", or R*)
Episode Overview
This episode explores why long-term interest rates have shifted sharply upward over the last six years, unraveling the concept of the “neutral rate of interest” (R*) and its importance for the global economy. Drawing on the new book by the guests, The Price of Money, the hosts and experts discuss what R* really is, how it's calculated, why it's risen, and what it means for central bankers, markets, and policymakers.
Key Discussion Points & Insights
1. What is the Neutral Rate of Interest (R star / R)?*
[08:14] Jamie Rush:
- “The natural rate of interest is what balances demand for investment and savings in the economy. And when those two things are in balance, the economy is on trend and inflation is roughly at target.”
- R* is the (unobservable) equilibrium real interest rate where economic activity is at potential and inflation at or near target.
- Criticized for being “unobservable” and sometimes treated as a policy justification tool, but remains a central policy concept.
2. Why Care Now? What Changed Since the 2010s?
[07:00] Tom Orlik:
- From the 1980s to mid-2010s: “too much saving and not enough investment,” driving R* lower.
- “What's happened in the last decade? Well, that dynamic has swung into reverse: now we have less saving, more investment, and that means the neutral rate... is going up.” ([07:12])
- Fall and then rise of “the price of money” reflect deep shifts in global savings, investment, government spending, and demographics.
3. How Much Higher Are Interest Rates and Why?
[08:44] Jamie Rush:
- Cites the pandemic period when borrowing was almost free for governments.
- “Interest rates, treasury yields in excess of 4% are much higher, much more burdensome. And now we're seeing the costs of those policies manifest in budgets today.”
4. Why is R Unobservable and Controversial?*
[04:00] Joe Weisenthal:
- Skeptical but intrigued: “I doubt that there is actually some rate that will magically bring the economy into balance if we knew what it was.”
- Conversation productive as a framework for understanding actual economic shifts.
5. How Do Economists Estimate R?*
[16:03] Jamie Rush:
- Standard models (Laubach and Williams): infer R* by seeing how inflation and unemployment react to policy.
- The book’s approach: “We tried to pin the natural rate down by using actual data and some theory… it’s the price of money, determined by supply (savings) and demand (investment).”
- Inputs: demographic trends, government deficits/surplus, productivity, investment needs, global trade balance.
- By examining these drivers over decades, their model explains both historical shifts and potential future changes in R*.
6. Key Drivers Behind the Surge in R*
[37:58] Tom Orlik, [39:51] Jamie Rush, [40:27] Joe Weisenthal
- Demographics: Baby boomers’ savings push was a main factor driving rates down; as they retire and dis-save, R* rises.
- Debt: Higher government borrowing post-2008 and especially post-Covid pushes up R*.
- Deglobalization: Reduced global trade and cross-border saving (especially from China and petrostates) puts upward pressure on R*.
- Defense & Data Centers (AI Investment): New global instability increases defense spending; an AI investment boom soaks up capital—both push R* higher.
- “Now we have the 5Ds: Debt, Demographics, Deglobalization, Data centers (AI), and Defense.” ([40:27])
7. Does Supply-side Fracturing (Reshoring, Friendshoring) Play a Role?
[24:48] Tom Orlik:
- Yes; if every country builds its own supply chain, investment spikes.
- “If everyone wants to make their own stuff at home, then clearly there has to be a massive amount of capital spending so everyone can build their own everything...”
8. De-dollarization and Treasuries
[34:45] Tom Orlik:
- If foreign central banks buy fewer U.S. Treasuries, less global demand means U.S. borrowing costs rise.
- “If the rest of the world is de-dollarizing, that also means they’re buying less US Treasuries... another force pushing US borrowing costs higher.”
9. Competing Interpretations: R as Political Justification?*
[23:30] Jamie Rush:
- Yes; central bankers can justify any stance by asserting a (conveniently unprovable) R* estimate.
- “With R you’re never beholden to a prediction really, are you?... a safe way to express your views if you just have an inner belief that rates need to be lower.”*
10. Can There Be Two R Stars? (Divergence in the Real and Financial Economy)
[33:15] Jamie Rush:
- “Maybe there’s an R star which keeps the economy balanced and maybe there’s an R star which keeps the financial sector and financial markets balanced... implies then that you’ve got this policy trade off.”
11. Other Forces for Higher Rates Ahead
[27:39] Tom Orlik:
- Rising supply shocks (climate, geopolitics)
- Political threats to central bank independence raise term premiums and borrowing costs
- Doubts about the Fed’s commitment to a 2% inflation target (growing market skepticism) ([29:26–30:59])
Notable Quotes & Memorable Moments
On the mysteriousness of R:*
- “I feel, Tracy, like this conversation is really about the magical object that you can't look at, right, because it'll freeze you. Or maybe it's the shining gold in the briefcase in Pulp Fiction, you can't see it.”
—Joe Weisenthal [15:09]
On generational drivers:
- “From the 1980s onwards, baby boomers started saving a lot. And so the supply of savings went up and the neutral rate went down. That's the reason why I never earned interest on my bank account until two years ago.”
—Tracy Alloway [19:48]
On politics and the Fed:
- “Having someone from the President’s team serve on the Fed concurrently, that's unprecedented... raises significant questions about Fed independence.”
—Tom Orlik [28:06]
On modeling and usefulness:
- “What's that line? It's like all models are fake, but some are least useful. It strikes me that it may be a fake concept, but a useful concept.”
—Joe Weisenthal [42:42]
On asset prices and interest rates:
- “AI can raise equity values because it's a frontier technology... It's also going to suck in a load of capital... which is going to drive up interest rates.”
—Jamie Rush [31:41]
On the centrality of the 5Ds:
- “We could really market this... Debt, Demographics, Deglobalization, Data centers, and Defense. We've come to something.”
—Joe Weisenthal [40:27]
Important Timestamps
- [05:15] Introduction of guests and their book: "The Price of Money"
- [08:14] Simple, working definition of R*
- [08:44] Contrasting pre-Covid and present borrowing costs
- [16:03] How their economic model differs from others
- [20:17] Biggest future driver of R* (government deficits/spending)
- [24:48] Effect of deglobalization and supply chain reshoring
- [27:39] New era of supply shocks, climate, and central bank independence
- [29:26] Is the Fed still targeting 2% inflation?
- [31:41] Impacts on asset prices
- [34:45] De-dollarization and the neutral rate
- [37:58 & 39:51] Top 5 drivers for the new era of higher rates (the "5Ds")
- [42:42] Reflection on the utility of the R* concept
Tone and Style Notes
True to the Odd Lots style, the conversation is rigorous yet playful, blending skepticism and fascination with core economic concepts. Self-deprecating asides (“I don’t believe in books”), pop culture references (Pulp Fiction suitcase, Ben Strong spanking children) and market-humor ensure accessibility for both finance pros and lay listeners.
Conclusion:
The surge in the so-called “price of money” can be traced to a reversal of historical savings and investment trends, demographic shifts, government debt and spending, deglobalization, AI investment booms, and defense outlays (the “5Ds”). While the “neutral rate of interest” is impossible to observe directly—and often manipulated for policy debates—the exercise of understanding and modeling it remains highly instructive for anyone seeking to make sense of today’s economic landscape.
Hosts’ Recommended Read:
The Price of Money (Orlik, Rush, Flanders) — a deep dive into R* and why it matters now more than ever.