Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: mishedlo who wrote (27800)	4/18/2005 7:42:42 PM
From: CalculatedRisk	Read Replies (2) of 116555

The Fed Funds rate is accommodative by definition (unless the Fed expects inflation to fall): calculatedrisk.blogspot.com P(e) = i(n) - i(r) Where: i(n) is the nominal interest rate. i(r) is the real rate. P(e) is expected inflation. We know i(n) = 2.75% (the Fed Funds rate). i(r) is usually between 1.5% and 2%. So the Fed Funds rate is accommodative if expected inflation is above about 1.25%. Currently Core PPI is close to 3%, CPI is 2.25% (less food and energy) and PCE deflator is 1.6% ... all above 1.25%. That is why I wrote: The Fed Funds rate is still very accommodative unless the FED expects future inflation rates to fall.

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