How does the Federal Reserve set interest rates?
The Fed sets a target range for one overnight rate between banks, then uses tools such as the rate it pays on bank reserves to keep it there. Other rates follow, loosely and with a lag.
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Markets and the economy: the forces behind the headlines
Interest rates, inflation and recessions move markets, and the news covers them every day. These notes explain where those numbers come from.
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Interest rates, inflation and recessions move markets, and the news covers them every day. These notes explain how the Federal Reserve sets its policy rate and why, how the Consumer Price Index is built, how economists date recessions, what people mean by bull and bear markets, what the yield curve shows and why it gets attention, and what happens during earnings season. Each note sticks to how the system works, with links to the Fed, the Bureau of Labor Statistics and other primary sources, rather than forecasts. The notes below are listed in reading order: start at the top, or jump straight to the question you have. Every note ends with its numbered sources.
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How is inflation measured with the Consumer Price Index?
The CPI tracks about 80,000 prices a month, weights them by what households actually spend, and turns the result into one index number. Here is how that number is built and read.
Read the noteWhat is a recession, and what does it mean for investors?
A recession is a broad, significant fall in economic activity that lasts more than a few months. In the U.S. it is dated after the fact, which is why markets rarely wait for the official word.
Read the noteBull vs bear market: what is the difference?
Bull and bear are labels for large moves in a broad market index — up or down by about 20%. Here is how the thresholds work and why a fall needs a bigger gain to recover.
Read the noteWhat is the yield curve, and why do people watch it?
The yield curve lines up U.S. Treasury yields from one month to 30 years. Its slope says something about what markets expect — and its inversions have a famous, imperfect record.
Read the noteWhat is earnings season, and how should a beginner read it?
Four times a year, most U.S. public companies report their results within a few weeks of each other. Here is what they publish, the SEC deadlines behind it, and how to read the numbers calmly.
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