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Econoday | Resource Center | Fed Statistics
Short Term Perspective This chart shows the gap between the funds rate and the yearly change in the PCE deflator in a different way. In essence, the gap reflects the "real" (inflation-adjusted) federal funds rate. Notice that the real rate remains low relative to 1998 despite the recent rate hikes engineered by the Fed. The real rate remains stable in October, but if a slowdown is in the cards, then the real rate needs to decline to get the economy moving again.
Long Term Perspective The Federal Reserve targets the federal funds rate (the rate that banks charge each other for the use of overnight funds) in order to loosen or tighten monetary policy. It is easier to see whether monetary policy is restrictive or accommodative by the relationship between the funds rate target and the inflation rate. We use the year-over-year change in the PCE (personal consumption expenditure) deflator. When policy is accommodative, the gap between the two series narrows; when policy is tight, the gap widens.