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.

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. The real federal funds rate target plunged between December and June, but remained essentially unchanged in July and August. The real rate jumped in September and October despite a lower nominal rate because inflation declined more rapidly than the federal funds rate target.