Money and Financial Markets
While the Federal Reserve controls several nominal interest rates, the real economy is affected by real rates, that is, rates adjusted for inflation. Treasury inflation-indexed securities (TIIS) adjust their principal and interest for inflation, giving a direct measure of real rates. It is also possible to estimate real rates using inflation expectations; for example, the Pennacchi approach estimates 30-day real interest rates to have been negative since late 2001. Both short and long rates have fallen substantially since early 2002, although they remain at or near their levels at the beginning of 2003.
Suggested citation: "Money and Financial Markets," Federal Reserve Bank of Cleveland, Economic Trends, no. 03-05, pp. 05-07, 05.01.2003.