After all, spending decisions should depend on real, not nominal, determinants, including the real federal funds rate, which is the nominal federal funds rate less prevailing inflation expectations.
Although backward-looking measures of inflation - such as the four-quarter growth in core personal consumption expenditure (PCE) prices - imply that the FOMC’s cumulative 75 basis points of tightening so far this year has moved the real federal funds rate into positive territory for the first time in almost three years, that observation is not sufficient to calibrate the stance of policy.