I compared the monthly average Fed Funds rate from their historical data, http://www.federalreserve.gov/releases/h15/data/m/fedfund.txt to BLS's "CUUR0000SA0" monthly annual price index changes at http://www.bls.gov/cpi/home.htm.
The answer to has this ever happened before looks like, yes, most recently in early 1993, rather a lot in the 70's and occasionally before then.
Other than giving an appearance of desperation, I'm trying to figure out if anything special happens when the real Fed Funds rate goes negative... If I'm a bank, can I borrow at 1.25% and come out ahead just holding it?
/jwc
----- Original Message ----- From: H. Curtiss Leung <hncl at panix.com> To: <lbo-talk at lists.panix.com> Sent: Thursday, November 07, 2002 1:57 PM Subject: Negative Federal Funds Rate?
> All:
>
> So the Fed dropped the target for the Federal Funds rate to 1.25%, which,
> according to the WSJ article on the rate decreases, is below the Fed's
> 1.8% inflation figure. So we've got a negative real interest rate for
> this money, yes?
>
> Two questions:
> --Has this ever happened before?
> --Does this amount to a polite admission that deflation could be
> a real problem?
>
> --
> Curtiss, wondering
>
> PS. If this is obvious to the economists here, just send me stuff
offlist.