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Fed Funds Rate Moves Inversely to the Umemployment Rate

December 10, 2003

Take a look at this chart: (click to enlarge)


The implication of this is that the Fed can decide how much unemployment our economy is going to endure.

Posted by manystrom at December 10, 2003 09:13 PM
Comments

The rate of short-term interest (fed feds rate) is inversely correlated with the unemployment rate as indicated by the chart. However, it would be erroneous to assume that FF rate is causal to the rate of unemployment.
It has much more to do with the correlation of levels of demand over all in the economy for both money (lower ff rate) and workers (higher unemployment). When the demand for money is high the demand for workers in also high and vice-versa.

Posted by: dan hanley at December 14, 2003 03:52 PM
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