Update on fed funds rates based on 7 simple monetary policy rules: Cleveland Fed

Our tool also allows users to customize their own simple policy rule and forecast

Looking at the federal funds rates coming from seven simple monetary policy rules and three economic forecasts -- based on data and forecasts available as of May 26, 2020 -- Federal Reserve Bank of Cleveland researchers find that the median federal funds rate across the policy rules and forecasts falls from -2.16 percent in 2020:Q2 to -14.09 percent in 2022:Q2.

"High unemployment rates and low inflation rates in these forecasts put downward pressure on the federal funds rate in simple monetary policy rules," says Edward Knotek, senior vice president in the Research Department. "This combination pushes the funds rate well below the zero lower bound, which is not present in most simple policy rules."

Simple monetary policy rules provide a relationship between a central bank’s policy rate and a relatively small number of indicators of inflation and real economic activity. Monetary policymakers often use simple policy rules, like the Taylor rule, as an input into their decision-making. However, there are many different simple rules, and there is no agreement on a single "best" rule. The chart below highlights differences among the latest funds rates coming from the simple policy rules and forecasts examined by Cleveland Fed researchers.

The Cleveland Fed’s webpage, Simple Monetary Policy Rules, presents detailed results from the researchers’ analysis and a spreadsheet so users can customize their own simple monetary policy rule and forecast. The results are updated quarterly, and users can receive e-mail notifications when the updates are posted. Subscribe here.

Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.

Media contact

Doug Campbell, doug.campbell@clev.frb.org, 513.218.1892