The term premium is the amount by which the yield on a long-term bond is greater than the yield on shorter-term bonds. This premium reflects the amount investors expect to be compensated for lending for longer periods. Because U.S. Treasuries come in a variety of maturities, we can take the differences between the various yields to measure the term premium. Above is a FRED graph with the 10-year Treasury yield less the 2-year Treasury yield and less the 3-month Treasury yield. The 10-year yield is often greater than the 2-year or 3-month yields, usually with a drop preceding recessions. A drop into negative territory, when the 10-year yield is lower than the 2-year or 3-month yields, is often called a “yield curve inversion.” (See, for example, this Economic Synopses essay.)
With FRED’s international data, we can repeat this exercise for other countries. For instance, we can measure the term premium in the United Kingdom by comparing yields on 10-year U.K. government bonds and 3-month U.K. Treasury securities. We see a similar trend, with an increase in the term premium during and after recessions and a fall in the term premium before recessions.
How these graphs were created: For the first graph, search for and select “10-Year Treasury Constant Maturity Rate” and click “Add to Graph.” From the “Edit Graph” panel, use the “Customize data” tool to search for and add “2-Year Treasury Constant Maturity Rate” and then enter a-b in the “Formula” box. Repeat this with “3-Month Treasury Constant Maturity Rate.” For the second graph, repeat the steps above but instead search for “10-Year (Medium-Term) government bond in the United Kingdom.” With the “Customize data” tool, search for and add “3-Month Treasury United Kingdom” and enter a-b in the “Formula” box.
The consumer price index (CPI) follows the price of a basket of goods. The goods in the basket are determined by the purchases of an “average” U.S. household. Each item is tracked at multiple locations and for numerous varieties. The data are then aggregated to form the CPI.
The CPI has been a part of FRED for quite some time (since the early days if not the very beginning). FRED also offers some finer slices of consumer price data. The graph includes three examples: unleaded gasoline, peppers, and tomatoes. These are still aggregates, as the tracked prices come from many locations and, for tomatoes at least, across the various brands, varieties, and other ways of differentiating products.
What immediately gets our attention is how dynamic these lines are. The prices for these items change a lot and with little notice, which is why monetary policymakers in general prefer to look at price indices that exclude food and energy: Volatility can hide the bigger picture of inflation.
To reveal the extent of this volatility, we constructed the graph below, which compares the general CPI and the CPI without food and energy. For the latter, we even included the series without seasonal adjustment to demonstrate that seasonal adjustment does not remove the noise that policymakers are worried about.
How these graphs were created: For the first graph, start from the Average Price Data release table, check the items you want displayed, and click “Add to Graph.” For the second graph, start from the CPI graph and go to the “Edit Graph” panel. From there, open the “Add Line” tab and search for “CPI less food and energy”; add the monthly seasonally adjusted series. Repeat for the not seasonally adjusted series. Finally, adjust the units to “Percent Change from Year Ago” and click “Copy to All.”
The June 13, 2019, FRED Blog post showed how, in a world of ample reserves, the FOMC sets a target range for the federal funds rate (FFR) and uses interest on excess reserves (IOER) and the overnight reverse repurchase agreement facility (ON RRP) to keep the FFR rate in the target range.
Since July 2019, the FOMC has lowered the target range for the FFR twice, effectively injecting liquidity into the banking system. And, at the September 17-18 FOMC meeting, the committee announced a 0.25% cut in the target rate, with an accompanying cut in the interest rate on excess reserves. But ahead of that meeting, the effective FFR spiked, exceeding the upper limit of the target range. So, an additional monetary policy tool was put into action.
On September 17, 2019, the Federal Reserve Bank of New York began conducting temporary open market operations through overnight repurchase agreements: That is, it purchased Treasury securities held by banks. The FRED graph above shows these recent operations. By default, FRED graphs with daily data show the past 5 years, so these temporary operations look like an ant parade along the x axis that lead to the recent interventions high in the stratosphere of the upper right corner. However, if you expand the graph to show the available data (by adjusting the date slider below the graph), you see these operations occurred almost every day up to 2008. We show this bigger picture in the graph below.
How these graphs were created: Search for “temporary open market operations” and select the “Overnight Repurchase Agreements: Treasury Securities Purchased by the Federal Reserve in the Temporary Open Market Operations (RPONTSYD)” series and click “Add to Graph.” Note that there’s a large number of daily observations here, so the FRED graph automatically does some sampling of the data. In FRED itself, expanding the scroll bar date range will reveal all the data points, which is shown below.
