Federal Reserve Rate Hike Policy Simulator

Macroeconomic Presets Live Parameters

Select Economic Environment

Headline Inflation (CPI/PCE) 3.8%

Target: 2.0% +1.8% gap

Unemployment Rate 3.6%

NAIRU (u*): 4.0% -0.4% slack

Real GDP Growth (Annualized) 3.2%

Potential Growth: 2.0% +1.2% gap

Assumed Neutral Rate (r* + π*) 2.5%

Fed baseline equilibrium Nominal anchor

Taylor Rule Parameters

Inflation Target (π*) 2.0%

Inflation Coefficient (α) 1.50

Output Sensitivity (β) 0.25

Target Policy Range 5.25% - 5.50%

Calculated Fed Funds Rate

5.25%

Target Step (25 bps standard increment)

Taylor Rule Rate (Exact)

5.38%

+2.88% above neutral

Projected Inflation (Q8)

2.2%

-1.6% over 8 quarters

8-Quarter Monetary Transmission Trajectory

Dynamic simulation of interest rate path, inflation deceleration, and GDP convergence.

Fed Funds Rate

Inflation Rate

GDP Growth

FOMC Policy Rationale Breakdown Tightening (Hawkish)

Inflation above 2% target and robust GDP growth necessitate monetary tightening.

Inflation Gap Response With inflation 1.8% above the 2.0% target, the Taylor reaction function prescribes an aggressive +2.70% policy premium.

Demand & Labor Slack Unemployment at 3.6% sits below the 4.0% natural rate, signaling labor market tightness that compounds wage-price pressures.