by Calculated Risk on 1/10/2008 07:31:00 PM

Here is a graph of the Fed Funds rate, inflation (as measured by Cleveland Fed median CPI), and the unemployment rate since 1990.

Click on graph for larger image.

The inflation rate is the Cleveland Fed median CPI and is a year-over-year rate - so it is a lagged series.

It's not unusual for the YoY inflation rate to be rising as the Fed cuts rates. Usually, as the economy weakens, the inflation rate will fall. That is the current expectation of the Fed.

Note: The graphs shows the Fed Funds rate at 3.75% at the end of January; that is what the market expects following Chairman Bernanke's speech this morning.


Source: Cleveland Fed, Fed Funds Rate Predictions

The market expectations are now solidly for a 50 bps rate cut on January 30th.