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Money and Financial Markets

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Financial markets offer one way to gauge the degree of accommodation in monetary policy (and perhaps to judge whether it is removed at “a pace that is likely to be measured” in the future). The real federal funds rate, that is, the nominal federal funds rate less the current inflation level, has been negative for several years, a substantially longer period than that which followed the 1990–91 recession. Just as the fed funds rate appears low relative to inflation, it seems low compared to other market rates, having generally been lower than the two-year Treasury note rate since late 2001. By historical measures, then, the current degree of accommodation seems large.

Suggested citation: "Money and Financial Markets," Federal Reserve Bank of Cleveland, Economic Trends, no. 04-09, pp. 05-07, 09.01.2004.

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