Part V of the series
Point I - Historical Fed rate versus Savings rate
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Above is the historical Savings rate viz the Fed rate. Until 1984 the savings rate ranged between 7% and 12%.
The Fed rate peaked at 19 % in 1981 - and has been steadily brought down since. This act corresponded with
Essentially the idea was finance increase’s in deficit with increases in “cheap debt”.
Point II - Fed rate versus savings rate - trend
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- Taking the trend in the past 25 years ( when interest rates have been on a decline ) it seems clear that the savings rate follows the Fed rate.
- Interestingly the drop in Fed rates initially had an almost immediate impact in a drop in savings rate. ( see the first shaded area)
- In the last two drops in Fed rate ( the last two shaded areas) the savings rate initially took 43 months to react in the first instance and 48 months to react in the second instance.
Answer to Question 3 : Increases in the Fed rate normally should result in flattening of the decline in savings rate / possible increases in savings rate.
Point III - Fed rate versus savings rate - reaction
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- It is clear that a change/decline in the Fed rate has a delayed reaction in change/decline in the savings rate
- In the first instance in the image the drop in Fed rates from May 1989 (9.81%) - resulted in a drop in savings rate from Dec’92 (delay of 43 months)
- A Rise in Fed rates from Jan’94 resulted in a flattening / slowing down in drop of savings rates from Jan’97 (delay of 36 months)
- Finally the drop in Fed rates from Jan’01 resulted in a drop in savings rate from Jan’05 ( delay of 48 months)
- Fed rates have been on the way up from Jul’04 ( from a 1.00% to a 5.25 % currently)
Taking the thumb rule ( 36 months - 48 months ) savings rate should start possibly having small increases from July’07 - July ‘08.
Also see ( will give indications of the fiscal policies of Republicans versus Democrats )
- USA - Fiscal situation as a percentage of GDP, under the recent four Presidencies ( since 1980 )
- Fiscal Deficit and Savings rate ( since 1981 )
- Manner in which the Deficit has been financed since 1995 ( Savings viz external debt)
- Relationship between Total Debt ( data from 1929) and External debt as a % of the GDP (data from 1995)
- USA - Relationship between GDP and Savings rate ( Quarterly data since 1985 )
It’s not clear at all that there’s any correlation from your graphs. People are good at seeing patterns in things where they want to believe there are patterns. Given how stochastic these signals are I think you’d need to give a measurably successful prediction model to even show that there is an interesting correlation.