The key is not supposed to be the difference between the interest rate and the inflation rate, but between interest and expected inflation. If borrowers expect deflation in the near future, interest rates can still be significant.
On Fri, Nov 08, 2002 at 06:39:50PM -0500, Doug Henwood wrote:
> H. Curtiss Leung wrote:
>
> >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?
>
> I've just put up a page on this at
> <http://www.leftbusinessobserver.com/Real_short_rates.html>.
>
> Doug
-- Michael Perelman Economics Department California State University Chico, CA 95929
Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu