The Fed’s Game Plan

The Federal Reserve meets again this week in Washington. A survey of 73 economists showed unanimous agreement that the Fed will leave rates unchanged at 5.25%. But the Fed could soon make a move. The futures market now indicates that there’s a 24% chance that the Fed will lower rates three times before the end of the year.
Here’s a look at the Fed Funds rate (blue line) and core inflation rate (black line) going back a few years. The red line is the difference. Basically, in a recession the blue line should be equal to the black line. In an expansion, the blue line should be about 2.5 to 3 points higher than the black line.

Posted by Eddy Elfenbein on March 19th, 2007 at 8:18 am

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