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06.05.19

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

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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 23, 2019 -- Federal Reserve Bank of Cleveland researchers find that the median federal funds rate across the policy rules and forecasts rises from 2.52 percent in 2019:Q2 to 2.79 percent in 2021:Q2.

“Compared with the forecasts available in late March, the current projections generally call for a lower path for inflation and a lower path for the unemployment rate,” says Edward Knotek, a senior vice president and economist at the Cleveland Fed. “In most simple policy rules, these factors pull the federal funds rate in opposing directions. But on net, the median federal funds rate path across policy rules and forecasts has moved down, and it rises to 2.89 percent in the first quarter of 2020, 17 basis points lower than its value last quarter.”

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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.

Simple Monetary Policy Rules


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