Question

If inflation has been running -1%, what real interest rate does a Fed Funds rate of 0% correspond to?

If inflation has been running -1%, what real interest rate does a Fed Funds rate of 0% correspond to?

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Answer #1

Real interest rate = nominal rates - inflation

Real interest rate = 0% - (-1%)

Real interest rate = 1%

So, real interest rate will be 1%.

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