Thursday, September 25, 2014

Fed Funds Rate Prediction for 2020 (Musical Tribute)

The following chart shows the natural log of the Fed Funds Rate since 1984. When using natural logs, exponential growth (or in this case, decay) can be seen as a straight line.


Click to enlarge.

I'd be tempted to predict a rate between 1.0% and 3.3% based on the "Cone of Decaying Monetary Policy" channel (and using the inverses of the natural logs to predict the rate in the future). However, that would assume we can even get back into that channel and stay there for any appreciable length of time. Can you say exponential trend channel failure?

I therefore predict that the Fed Funds Rate at some point in 2020 will be a mere 0.25%. Think ZIRP + Japan. It just feels right (and oh so wrong). Can it go higher between now and then? Maybe, maybe not. The higher it goes the more likely a monster will be unleashed though. I have few doubts about that.



Source Data:
St. Louis Fed: Custom Chart

7 comments:

jeff said...

The Fed publishes a "shadow fed fund rate" which converts the amount of QE (liquidity of money) into a equivalent "feds fund rate" (interest rate)

Bottom of the page
http://www.frbatlanta.org/cqer/researchcq/shadow_rate.cfm

By their estimates we are running at an equivalent of -3% Fed Fund rate.

jeff said...

The Fed publishes a "shadow fed fund rate" which converts the amount of QE (liquidity of money) into a equivalent "feds fund rate" (interest rate)

Bottom of the page
http://www.frbatlanta.org/cqer/researchcq/shadow_rate.cfm

By their estimates we are running at an equivalent of -3% Fed Fund rate.

Stagflationary Mark said...

jeff,

-3% is certainly a long way from the channel, lol. Sigh.

Troy said...

http://research.stlouisfed.org/fred2/graph/?g=LCH

Three Regimes

1950 - 1980
1987 - 2000
2009 -

Stagflationary Mark said...

Stair step charts like that always fascinate me. My next post has one too. Look for it soon!

Troy said...

hmmm, in 1978 the BB was age 14-32 and the Fed had to throw the kitchen sink at them to stop them from borrowing too much too fast.

in 2014 the BB echo is age 14-32 . . .

unfortunately for them we've already loaded a lot of debt on them . . .

http://research.stlouisfed.org/fred2/graph/?g=LHg

WTH happened in 2008 ? ? ?

Stagflationary Mark said...

Troy,

We threw the kitchen sink at the baby boomers. Now we're letting the echo boomers borrow it, lol. Sigh.