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« Orphan Stocks | Main | Jos A Bank's Earnings » September 11, 2007 What Should the Fed Funds Rate Be?Harvard Econ Professor (and blogger) Greg Mankiw came up with a nifty equation of determining what the Fed Funds rate ought to be. Federal funds rate = 8.5 + 1.4 (Core inflation - Unemployment) In July, the unemployment rate was 4.647%. The core CPI was 2.210%. That translates to a Fed Funds rate of 5.088%, which is below where the Fed is now. Here’s a look at how the Mankiw Rate compares with the real Fed Funds rate over the past few years.
One small problem with this method is lag. The latest month we have data for is July. The August CPI will be coming out next week. (I also had a minor technical criticism of Mankiw's equation.) Posted by edelfenbein at September 11, 2007 2:57 PM |
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