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The Fed has more work to do

The US market opens today for the first trading day of the year. At the top of the list of worries, we have inflation and the Fed actions, which we will know by Jan 31st, the date of the next #fomc. The chart below shows the relationship between fed funds rates and #cpi at the end of the tightening cycle. Without exception, rates have been above headline cpi on each instance the fed declared victory on inflation. In other words, they need positive real rates at the end of the tightening cycle. As of today, inflation is 250 bps above fed funds, which indicates the fed is not done. On the positive side, comparison vs a strong cpi report on 2022, should help easing some pressure, but the job is not done.

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