What the Fed sees
Core inflation, the funds rate, the 2-year, and the jobless rate — one glance.
The Federal Reserve has two jobs: stable prices, defined as 2% inflation, and maximum employment. This chart shows the four numbers that best summarize where it stands. Core PCE inflation (excluding food and energy) is the measure the Fed targets, unemployment is the other half of its mandate, the fed funds rate is its main tool, and the 2-year Treasury yield is the market's bet on where that rate is heading.
In 2020 the Fed cut to nearly zero as unemployment hit 14.8%. By 2022 the problem had flipped: core inflation peaked above 5.5%. Look at the 2-year line: it began climbing in late 2021, pricing in rate hikes months before the Fed delivered them.
The Fed raised rates faster than at any time since the early 1980s, taking fed funds from near zero to 5.33% by August 2023. The feared recession never came: unemployment hit 3.4% in April 2023, its lowest since 1969.
Cuts began in September 2024. As of July 2026 the funds rate is 3.63%, unemployment is 4.1%, and core inflation is 3.3%, still well above target. The 2-year yield, at 4.34% in late August, sits above the funds rate, suggesting markets expect the next move to be up rather than down.