Global anchor · Money · Central Banks and Money
72warm
1.31 percentage points above its 10-year average | Data for Sep 2026
Hot and cold describe position, not good or bad: warm does not mean a fall is coming, and an extreme reading does not mean a quick reversal. We describe history only, with no buy or sell advice.
What it is
The rate at which US banks lend to each other overnight. The Federal Reserve sets a target range for it. It is the world’s most important short-term interest rate.
It sets the cost of dollar funding and affects mortgages, corporate borrowing and the flow of money between countries.
Where it stands now
coldcoolneutralwarmhotHatched = earlier periods that were also warm
When it was here before
US stocks after it began, cumulative1 yr2 yr3 yr
For each period, the changes 1, 2 and 3 years after it began are cumulative and measured from its first month; “What happened next” is measured from every warm month, so the two give different numbers. The events named beside each period are major events of that time, not necessarily related to the readings here.
What happened next
Bars: median cumulative changeEarlier months with Fed funds rate warm, excluding the current period (78)All months (629)
Median of the deepest drop below the starting month within the next 5 years: −37.3% for months with Fed funds rate warm; −4.1% for all months.
The warm months come from a small number of market episodes (9), and neighboring months are not independent events; rises and falls are all listed. This is the historical record, not a forecast. “US stocks” means the S&P 500 price index compiled by Professor Shiller (monthly average, excluding dividends).
| Median position | Back to neutral (40–60) | Still warm or more extreme | |
|---|---|---|---|
| 1 yr later | 67warm | 14% | 54% |
| 3 yr later | 23cool | 18% | 22% |
| 5 yr later | 32cool | 11% | 33% |
Has hot or cold lined up with later returns?
1974–2021: average yearly change in US stocks over the next 5 years
There is no clear relationship between hot or cold and what came next. The gaps between the bars are not consistent across months (rank correlation below 0.25); this is a record of the past, not a forecast.
What it is linked to
US inflationtoFed funds rateCommon explanation: Cause · same direction
When inflation is above target, the central bank raises rates to cool demand
This issue: US inflation at 64 (warm), Fed funds rate at 72 (warm) — both above normal, in line with the common explanation.
Supported by the dataAgreement +0.53 · in step in 37 of 48 5-year periods
Fed funds ratetoYield curveCommon explanation: Cause · opposite direction
Rate hikes lift short-term rates first, flattening or inverting the curve
This issue: Fed funds rate at 72 (warm), Yield curve at 41 (neutral) — at least one is in the neutral range (40–60), so we make no call this issue.
Supported by the dataAgreement +0.77 · in step in 46 of 48 5-year periods
Core inflationtoFed funds rateCommon explanation: Cause · same direction
The Fed’s 2% target is set for overall prices, but it uses core inflation, which excludes food and energy, to judge the trend
This issue: Core inflation at 35 (cool), Fed funds rate at 72 (warm) — Core inflation below normal, Fed funds rate above normal, not in line with the common explanation.
Weak or inconsistentAgreement +0.65 · in step in 31 of 44 5-year periods
UnemploymenttoFed funds rateCommon explanation: Cause · opposite direction
When unemployment rises, the central bank cuts rates to support jobs (its dual mandate)
This issue: Unemployment at 44 (neutral), Fed funds rate at 72 (warm) — at least one is in the neutral range (40–60), so we make no call this issue.
Weak or inconsistentAgreement +0.30 · in step in 43 of 48 5-year periods
Fed funds ratetoNet share hikingCommon explanation: Ripple · same direction
Once the Fed changes course, other central banks often follow
This issue: Fed funds rate at 72 (warm), Net share hiking at 82 (hot) — both above normal, in line with the common explanation.
Weak or inconsistentAgreement +0.19 · in step in 36 of 47 5-year periods
Values
Data and sources