GlossaryFederal Funds Rate
Federal Funds Rate
The effective US policy rate (Effective Federal Funds Rate): the rate at which US banks lend each other money overnight, as a monthly average. Zones show whether money is currently cheap or expensive, and US recessions are shaded on the price.
What is drawn
Its own pane shows the interest rate in percent, colored by zone:
| Zone | Range | Color |
|---|---|---|
| Near zero | below 1% | green |
| Accommodative | 1 to 3% | light green |
| Restrictive | 3 to 5% | orange |
| Highly restrictive | from 5% | red |
Reference lines sit at 1, 3 and 5%. The faint line at 2.5% is a reference for the neutral rate, which neither slows nor stimulates the economy. The boundary at 3% matches the upper end of the Fed's long-run estimate of the neutral rate; 5% is roughly the level at which the last tightening cycles ended.
On the price, the study shades US recessions as dated by the NBER, from the first to the last month of the contraction, with labels such as “Oil crisis” 1973–75, “Volcker recession” 1981–82, “Dot-com” 2001, “Financial crisis” 2007–09 and “COVID-19” 2020. If a recession lies only partly in the loaded range, the visible part is shaded.
How to read it
- A rising policy rate makes money more expensive and is a headwind for risk assets, a falling one a tailwind.
- With the shading you can see where rate cycles stood relative to recessions: the first cuts often came shortly before or at the start of a downturn.
- The rate is a monthly value. On daily candles the line runs as a staircase, and because the monthly value is only final after month end, the current month is often missing at the right edge.
Good to know
- No settings other than the style. Intended for 1D to 1W.
- This study doesn't show the Fed's target range. For that, use mantacharts: Policy rates.