The Fed has calculated what forward guidance and their balance sheet policy mean for the Fed funds rate, and their estimates show that the proxy Fed funds rate, which also includes forward guidance and the Fed balance sheet, is significantly higher. Specifically, these Fed estimates show that monetary policy is much tighter with the proxy Fed funds rate at 6% rather than the official 4%. The bottom line for markets is that the true stance of monetary policy is tighter at 6% than the Fed funds rate at 4%, see chart below and here. In other words, comparisons with history and discussions of how restrictive monetary policy should not only look at the level of the Fed funds rate but also include the new tools that the FOMC is using today to cool the economy down.
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