Core inflation → Fed funds rate

Common 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.

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.

Where it stands now

Where the two indicators stand this issue

Core inflation: 0.56 percentage points below its 10-year average. Fed funds rate: 1.31 percentage points above its 10-year average.

Tests

Does this link hold up?

Common explanationThe Fed’s 2% target is set for overall prices, but it uses core inflation, which excludes food and energy, to judge the trendSource: Federal Reserve Board, “What is inflation, and how does the Federal Reserve evaluate changes in the rate of inflation?” (2025). That page refers to the PCE price index; this site uses core CPI.
Tested against our dataAgreement between the positions of Core inflation and Fed funds rate (6-month lag), measured in the direction of the common explanation: +0.65. Looking at every 5-year period (shifted one year at a time), the two moved in that direction in 31 of 44. Weak or inconsistent
Periods when it did not holdAcross 44 5-year periods, out of step in 1982⁠–⁠2004.

History

The two lines, overlaid

Data: US Bureau of Labor Statistics (core CPI) and Bureau of Economic Analysis (core PCE), via FRED (Federal Reserve Bank of St. Louis); Federal Reserve H.15, via FRED (Federal Reserve Bank of St. Louis). Positions: our calculation.

Core inflationFed funds rate

Limits

What this card cannot tell you

Moving together does not prove that one causes the other.
Links change over time; periods when this one did not hold are listed in full.
This is the historical record, not a forecast.

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