On Wednesday, the Fed will conclude its two-day meeting. It is widely expected that central bankers will keep the fed funds rate at 1.50 – 1.75%.
Economic growth has moderated versus a year ago, and interest rates are low and continue to underpin the economy.
One way we can determine whether or not interest rates are supportive or restrictive of economic growth is to compare the current fed funds rate with nominal GDP (Gross Domestic Product—the broadest measure of the value of economic output). Nominal GDP is actual GDP plus inflation.
The graphic below compares the quarterly average fed funds rate with the eight-quarter average of nominal GDP going back to 1960.