Where policy is, and what the market prices
Reading the data…
1. Policy rate vs the market
The 2-year Treasury yield is roughly the market's average expected policy rate over the next two years, plus a small term premium. A 2-year yield below fed funds means the market expects cuts; above means hikes.
2. Real policy rate vs neutral
Real fed funds = effective rate minus core PCE inflation (year over year). The neutral proxy is the FOMC's own longer-run median rate minus its 2% target. Above neutral restrains demand; the further above, the more restrictive.
3. Treasury curve: today vs 3 and 12 months ago
Constant-maturity yields from 1 month to 30 years. A bull steepener (short yields falling fastest) usually accompanies an easing cycle; a bear steepener (long yields rising) points to term-premium or fiscal pressure.
4. What is inside the 10-year yield
The nominal 10-year splits into a real yield (TIPS) plus breakeven inflation. Separately, the Kim–Wright model splits it into expected short rates plus a term premium: the extra yield investors demand for holding duration.
Methodology & sources
FRED series: DFEDTARL/DFEDTARU (target range), DFF (effective fed funds), DGS1MO–DGS30 (constant-maturity Treasuries), PCEPILFE (core PCE), FEDTARMD and FEDTARMDLR (FOMC Summary of Economic Projections medians), DFII5/DFII10 (TIPS yields), T10YIE (10-year breakeven), THREEFYTP10 (Kim–Wright 10-year term premium, Federal Reserve Board).
Market-implied path. 2Y minus fed funds is a rough gauge. It mixes expectations with a term premium and cannot separate the timing of moves. Fed funds futures give a cleaner path but are not available from free keyless sources.
Neutral. r* is unobservable. The FOMC longer-run median minus 2% is the committee's own estimate; model estimates (Laubach–Williams, Holston–Laubach–Williams) differ by up to a percentage point.