Policy rate
What it is
Central bank's policy interest rate (Fed Funds in the US, overnight financing rate at the Bank of Canada). It's the main monetary policy lever — it sets the cost of money for the entire financial system.
How to read it
Raising the policy rate slows the economy (credit more expensive, consumption and investment slowed); lowering it stimulates. It's the primary anti-inflation weapon. The market watches especially the ANTICIPATED rate path 6-12 months out, not the current level.
Common reference points
- Very accommodative — stimulating< 2%
- Neutral2 – 4%
- Restrictive — braking4 – 5.5%
- Very restrictive — recession risk> 5.5%
Orders of magnitude, not a rule: the same number does not mean the same thing from one sector to the next.
What it does not tell you
Policy rate acts with delay (6-18 months) on the real economy. The REAL rate (nominal − expected inflation) matters more than nominal. And each central bank has a different mandate — the Fed targets inflation + employment, the ECB targets inflation only.
Other measures — Macro — rates
Educational content. Polaris is not a registered investment adviser and makes no recommendation.