This site presents a monthly series of the proxy funds rate, following Doh and Choi (2016) and Choi, Doh, Foerster, and Martinez (2022). This measure uses public and private borrowing rates and spreads to infer the broader stance of monetary policy. When the Federal Open Market Committee uses additional tools, such as forward guidance or changes in the balance sheet, these policy actions affect financial conditions, which the proxy rate translates into an analogous level of the federal funds rate.
This measure uses a set of 12 financial variables, including Treasury rates, mortgage rates, and borrowing spreads to assess the broader stance of monetary policy. Using principal components, common movements among the 12 financial variables are extracted. The first three principal components are then mapped to levels of the federal funds rate, where the mapping reflects the pre-2008 correlations between them. Until December 2008, the mapping is nearly exact by construction; after 2008, the mapping from financial conditions to the funds rate diverges. This separation displays how the proxy funds rate responds to developments in financial conditions such as forward guidance and balance sheet operations.
The proxy rate can be interpreted as indicating what federal funds rate would typically be associated with prevailing financial market conditions if these conditions were driven solely by the funds rate.
Choi, Jason, Taeyoung Doh, Andrew Foerster, and Zinnia Martinez. 2022. “Monetary Policy Stance Is Tighter than Federal Funds Rate.” FRBSF Economic Letter 2022-30, November 7.
Doh, Taeyoung, and Jason Choi. 2016. “Measuring the Stance of Monetary Policy on and off the Zero Lower Bound.” FRB Kansas City Economic Review 101(3), pp. 5–21.
Proxy funds rate data (Excel document, 29 kb)