Summary

Executive Summary

Purpose

  • What: Track policy (Fed Funds Rate) and consumer prices (CPI YoY) trends across major crises
  • Why: Evidence the impact of policy changes in stimulating the economy during financial crisis

Scope

  • Duration: 2000 to Present (July 2025)
  • Focus Areas: Market contractions during Dot-com (2000–02), GFC (2007–09), COVID (2020)

Takeaways

  • Signals: Fed Funds & CPI Headline/Core show policy stance and inflation
  • Crisis: Fed makes swift cuts (often to 0) to stabilise economy

Signals Background

Fed Funds Rate (Policy)

  • Sets the overnight interbank rate → drives borrowing costs across the economy
  • Cuts = easing/stimulus || Hikes = tightening to cool demand & inflation

CPI Headline (Prices)

  • Includes all items (food & energy) → best view of total cost of living
  • More volatile month-to-month; reacts quickly to energy/food shocks

CPI Core (Underlying Trend)

  • Excludes food & energy → smoother read of inflation
  • Watched closely by Fed to judge if inflation pressures are entrenched

Dot-com Bubble

Impact

  • The tech bubble burst → stock prices fell and growth slowed.
  • Inflation (CPI) stayed fairly low and steady.

Policy Moves

  • Fed raised rates until Jul 2000 (~6.5%) & then cut steadily
  • No additional quantitative easing (QE) undertaken as rate cuts were effective

Result

  • Cheaper borrowing helped the economy gradually recover
  • Prices stayed moderate; no major inflation spike

Global Financial Crisis (GFC)

Impact

  • Credit markets froze; spending and jobs declined sharply.
  • Inflation fell back; and fears of a core CPI deflation

Policy Moves

  • Fed slashed rates to near 0% (ZLB - Zero Lower Bound)
  • Launched bond-buying (QE) to push money into the system and calm markets

Result

  • Markets stabilised and the recovery was slow, yet steady
  • Inflation stayed low for years; policy stayed very easy

COVID-19

Impact

  • The economy shut down suddenly & supply chains jammed
  • Money supply (M2) jumped; prices rose fast on reopening

Policy Moves

  • Fed cut rates back to ~0% (ZLB) and did very large bond-buying (QE)
  • As inflation surged, the Fed later hiked rates quickly (2022–23)

Result

  • Fast rebound first → high inflation → then cooldown as policy tightened
  • Note: a 2020 rule change (Reg D) makes M2 harder to compare over time

User Guide

Select time window

  • Use the buttons (Full / Dot-com / GFC / COVID / 2020+) to jump
  • Drag the range slider under the chart to fine-tune dates

Read the lines

  • Fed Funds = policy stance; CPI = price pressure
  • Hover for exact values & click legend to toggle (hide/show) series

Use of context

  • Grey shading marks crisis periods on the chart
  • Compare how policy cuts/hikes and CPI trends are intertwined

References

Federal Funds Rate — FEDFUNDS

  • No data conversion applied
  • Source: Board of Governors via FRED. Open on FRED

CPI Headline — CPIAUCSL

  • Converted to 12-month year-on-year (YoY) % change
  • Source: US Bureau of Labor Statistics via FRED. Open on FRED

CPI Core — CPILFESL

  • Converted to 12-month year-on-year (YoY) % change
  • Source: US Bureau of Labor Statistics via FRED. Open on FRED

PLOT

Policy vs Prices (2000–Present)