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Friday, February 11, 2022

How high should be the FED fund rate be given the present inflation and economic condition?


Based on the current inflation and economic condition, the Taylor Rule estimate is projecting that the Fed fund rate should be at 11% instead of the current 0-0.25% range.

This shows that the FED is way behind the inflation curve and it has to ramp up the interest rate in an aggressive manner.

However, the economic condition is deteriorating in 2022 as stated by the Citi economic surprise index because the real economic situation is underperforming.  The current Citi economic surprise index is in the negative value now (10 Feb 2022).  Please click below for the explanation.

http://sg-stock.blogspot.com/2021/12/how-likely-is-us-fed-behind-inflation.html

This doesn't bode well for the US as increasing the FED rate aggressively in an economic downturn is a perfect recipe for a major disaster (financial crisis).

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