The Fed's Plan: Lower Interest Rates?

by: Eddy Elfenbein

Eddy Elfenbein submits: The Federal Reserve meets again this week in Washington. A survey of 73 economists showed unanimous agreement that the Fed will leave rates unchanged at 5.25%. But the Fed could soon make a move. The futures market now indicates that there's a 24% chance that the Fed will lower rates three times before the end of the year.

Here's a look at the Fed Funds rate (blue line) and core inflation rate (black line) going back a few years. The red line is the difference.

Basically, in a recession the blue line should be equal to the black line. In an expansion, the blue line should be about 2.5 to 3 points higher than the black line.

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The Fed & Inflation