Monday, June 13, 2022

The Notable Level Of The Real Fed Funds Rate

On January 9, 2017 I wrote a post titled “Low Interest Rates And The Formation Of Asset Bubbles.“  As discussed in that post – and for other reasons – the level of the Fed Funds rate – and whether its level is appropriate – has vast importance and far-reaching consequences with regard to many aspects of the economy and financial system.

Along these lines, below is an updated long-term chart indicating the Real Fed Funds Rate [FRED FEDFUNDS – CPIAUCSL] , with a last value of -7.74641% through May 2022. [FEDFUNDS = .77% as of the June 1, 2022 update; CPIAUCSL = 8.51641% as of the June 10, 2022 update]

Of particular note is the post-2000 persistently negative Real Fed Funds rate:

Real Fed Funds Rate

source: Board of Governors of the Federal Reserve System (US), Effective Federal Funds Rate [FEDFUNDS], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed June 13, 2022: https://fred.stlouisfed.org/series/FEDFUNDS

source: U.S. Bureau of Labor Statistics, Consumer Price Index: All Items in U.S. City Average, All Urban Consumers [CPIAUCSL], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed June 13, 2022: https://fred.stlouisfed.org/series/CPIAUCSL

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 3800.28 as this post is written

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