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This week’s chart graphs the Fed Funds Target Rate (Orange line) versus the headline unemployment figure (Green line.) The white boxes on the graph correspond to the past seven U.S. economic downturns. The important take away from the chart is the relationship between the Fed’s mentality toward raising the Fed funds target in the face of the unemployment figure. During these previous recessions, the Federal Reserve has never reversed course and raised rates while unemployment was rising. It is important to note that the time frame between the peak of the unemployment rate and the time it took for the Fed to begin raising rates has varied given the differing environments during each recession. In all likelihood, it is safe to say that while unemployment continues to expand, the Fed will be on hold for the short-term future.
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