Fed Funds: Typical Cycle

Tuesday, August 08, 2006 | 06:05 PM

This chart below illustrates the average change (blue line) in the fed funds rate following a major bottom. While the last Fed tightening cycle (gold dashed line) fell a touch short of average, this tightening cycle has already witnessed a run that is a touch more than average -- because we started from such unusually low levels (1%).

Consider how unusual this Fed cutting and tightening cycle is:

Fed_funds_1


Source: Chart of the Day
(updated through July)

Tuesday, August 08, 2006 | 06:05 PM | Permalink | Comments (17) | TrackBack (0)
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Comments

What if one year from now, we realize that Fed should have finished at 4.75%? Ever since May, a lot of people were criticizing Feb for not doing enough, while a flat/inverted yield curve already indicated the high possibility of overshooting.

If anything, with tightening from ever central bank, and excess capacity built up in China, commodity and oil induced price increases will be contained by economic slowdown.

Posted by: yc32 | Aug 8, 2006 6:59:28 PM

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