Rules Call For 4+% Rates: MonPol Report To Congress

Simple monetary policy rules called for a fed funds rate in the 4% to 7% range in the first quarter of 2022 and have risen since then as inflation climbed, the Federal Reserve said in its semiannual Monetary Policy report to Congress.

• As noted by our Policy team, the Fed also cautioned that the usefulness of these rules are "limited in unusual economic circumstances" and don't take into account the effect of balance sheet tightening.
• "The recent elevated inflation readings imply that the prescriptions for the federal funds rate of simple policy rules in the first quarter of 2022 are well above their pre-pandemic levels, at between 4% and 7%. Overall, the prescriptions of all simple rules have risen notably over the past few quarters as inflation readings climbed further above 2%."
• This study won't sway current Fed policy, but it does underline that the FOMC still has plenty of room to go before policy begins to look restrictive.

Source: Federal Reserve