Oil prices and Fed Funds diverge strongly

Tuesday, May 24, 2005

Waiting on the FOMC minutes, due in less than an hour, I came across this very interesting long term chart that that compares oil prices (blue line) with the Fed Funds rate (red line) over the last 30 years. Pink shaded areas show recession periods.

Until 1999 they had a pretty good positive correlation. That changed since. According to chart theory the huge divergence in the last five years can be seen as a temporary aberration of a longterm convergence. As nobody expects oil prices to ease significantly this leaves a lot of skyward potential for the Fed Funds.
In order to see a better version of the chart, click here.


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