May 17, 2023 - Economy & Business

PIRP is the new ZIRP

Data: FRED; Chart: Axios Visuals
Data: FRED; Chart: Axios Visuals

Real interest rates are now at extremely high levels, after rising 5.6 percentage points since April 2022.

Why it matters: So long as inflation expectations continue to decline, real rates will continue to rise — a stealth tightening that could help preclude further actual Fed hikes.

How it works: The Fed funds rate is now 2.7 percentage points higher than expected inflation over the coming year.

What they're saying: "Look at the nominal rate and then subtract a reasonable estimate of, let's say, one-year inflation," said Fed chair Jerome Powell at a news conference earlier this month. "Policy is tight."

Go deeper