Real Rate

interest rate 3While short-term rates are extremely low, the Fed Funds rate is at 0.375%; monetary policy isn’t all that expansionary! The real interest rate — the fed funds rate minus inflation -– is roughly -1.25%, yet the rate that is neither expansionary nor contractionary is about 0%. That’s why the Fed isn’t in a huge rush to raise rates. I expect one quarter-point rate rise in 2016 and two in 2017.

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