Accommodation Index

The Federal Reserve continues to maintain a restrictive monetary policy as measured by our Index. 

The Accommodation Index remained negative for the third quarter of 2024 at -6.1, the same as the revised second quarter reading, suggesting that central bank policy continues to be restrictive as inflation has moves lower toward policy targets. At some point in the future, the economy will likely react negatively to the restrictive policy. Still, it is not possible to point to a specific timeline as central bank actions work with long and variable lags.

 The Accommodation Index, calculated quarterly, was developed to assess central bank policy by looking at the sum of the difference between money supply and GDP growth and the difference between inflation and interest rates. Negative values indicate restrictive policy, while positive values indicate accommodative policy.  Both components were negative for the quarter, with readings of -2.2 for the growth component compared to the prior revised -3.5 and -3.9 for the rate component compared to the prior -2.5. The recent and expected Federal Reserve rate cuts likely will be insufficient to move the Index into positive territory over the coming quarters.

 The Index has been negative since the third quarter of 2022, following an extensive period of mostly positive readings dating back to the financial crisis.