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Inflation and the Fed rate decisions between 1954 and 2024. Should we expect recession?

Author

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  • Kitov, Ivan

Abstract

A strict linear proportionality between the CPI inflation and the actual interest rate defined by the Board of Governors of the Federal Reserve System is studied. During the last 70 years, the cumulative CPI is just the cumulative interest rate times 1.37. There are periods when the Fed interest rate deviates from the long term inflation trend driven by the CPI. In this paper, we use the observational dataset provided by the Economic Resources & Data of the Federal Reserve Bank of St. Louis. The difference between the cumulative curves of the CPI and the Fed rate divided by 1.37 is periodic. The recessions observed after 1955 are well synchronized with the kinks and turns in the difference curve. The most recent recession as related to the peak in the difference was expected in 2020, but was likely mixed with the COVID-19 induced recession. The current Fed rate is not high enough to return the difference to the zero line in before 2030-2040.

Suggested Citation

  • Kitov, Ivan, 2024. "Inflation and the Fed rate decisions between 1954 and 2024. Should we expect recession?," MPRA Paper 122192, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:122192
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    More about this item

    Keywords

    FRS; Fed rate; CPI; recession;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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