How Does Inflation Affect Interest Rates?
The policy rate is the lever, and the market rates are the pulleys it moves.
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1.What is the policy rate?
The policy rate is the lever, and the market rates are the pulleys it moves.
2.What is the Fed's inflation target, and with which measure?
When inflation runs above target, the Fed can raise rates to slow demand.
3.In the Taylor sum with inflation at 2, the rate is 4. If inflation climbs to 4, what is the rate?
The rule adds the 2 extra points, plus half of them again.
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Sources (8)
- Gavin, W. T.: Deflation and the Fisher Equation, Monetary Trends, Federal Reserve Bank of St. Louis (October 2010)
- Federal Reserve Board: Monetary Policy: What Are Its Goals? How Does It Work?
- Federal Reserve Board: Why does the Federal Reserve aim for inflation of 2 percent over the longer run? (FAQ)
- Knotek, Verbrugge, Garciga, Treanor, Zaman: Federal Funds Rates Based on Seven Simple Monetary Policy Rules, Economic Commentary 2016-07, Federal Reserve Bank of Cleveland (07.11.2016)
- FOMC Statement, 27. January 2021 (Federal Reserve Board)
- FOMC Statement, 16. March 2022 (Federal Reserve Board)
- Eigene Rechnung: Taylor-Regel
- Exposé Folge 320 (05_szenen/exposee_v1.json)
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