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 .93116% through May 2023. [FEDFUNDS = 5.06% as of the June 1, 2023 update; CPIAUCSL = 4.1% as of the June 13, 2023 update]
Of particular note is the post-2000 persistently, and often extensively, negative 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 26, 2023: 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 26, 2023: https://fred.stlouisfed.org/series/CPIAUCSL
The Special Note summarizes my overall thoughts about our economic situation
SPX at 4337.55 as this post is written