Capital Markets: Observations & Insights

Monetary Policy Is Not Restrictive ​ Fundamentals

• Over the past half century, every U.S. recession has been preceded by a significantly positive real Federal Funds rate of 2% or higher

• In contrast, today we have a real Fed Funds rate of about 0%

Real Federal Funds Rate Prior to U.S. Recessions

10%

5%

Today real short-term interest rates are far

4%

4%

4%

3%

3%

2%

lower than what induced previous recessions

2%

0%

Source: FactSet as of March 2018. Inflation represented by PCE Price Index ex-food and energy (year over year). Nominal Federal Funds rate is average of 3 months prior to recession. Horizontal axis labels denote recession periods.

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