The already low level of interest rates in the United States andthe rest of the industrial world could fall further, three seniorcentral bankers said on Sunday.

Speaking at the American Economic Association's annual meeting,Federal Reserve Bank of New York President John Williams, EuropeanCentral Bank (ECB) chief economist Philip Lane, and Bank of EnglandDeputy Governor Ben Broadbent all saw a possibility that so-called"R-star"—the neutral level of interest rates that neither spurs norrestricts growth in their economies—might drop in the future.

"You could see R-star go lower because of demographics,"Williams told the audience in San Diego.

Estimates of R-star vary widely. U.S. Federal Reservepolicymakers generally peg it at about 2.5 percent for theshort-term federal funds rate that the U.S. central bank targets.The neutral rate in the Eurozone and Japan is commonly thought tobe lower.

A variety of structural forces—aging populations and sluggishproductivity growth, among them—are reckoned to have been pushingdown the neutral rate in industrial countries for years. That"doesn't rule out a scenario where it gets even lower," Lanesaid.

While admitting that'spossible, Broadbent voiced hope that equilibriumrates would rise back to levels that have prevailed historically."I do hopethat over the next decade or two" that might happen, he said.

Williams, who's spent much of his career studying the concept ofR-star, cast some doubt over that optimistic view. "There are manystages of grief" experienced by economists and policymakers who'vebeen forced over the years to grudgingly accept the downward trendin interest rates, Williams said.

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