The Real Rate Index

## What this measures

The Real Rate Index is the historical percentile of the real Fed funds rate — the effective Fed funds rate minus trailing twelve-month CPI inflation. High readings mean the cost of capital is expensive relative to history; low readings mean money is cheap. The midpoint is the long-run real rate norm.

## Why it matters

Real rates are the most under-appreciated number in capital allocation. They decide whether to deploy capital now or wait. When real rates are deeply negative — as they were in 2009-2015 and 2020-2022 — patience is expensive and aggressive deployment makes sense. When real rates are high — as in the early 1980s and again in 2023-2024 — patience is cheap and discipline pays. A single percentile makes this read board-meeting-legible.

## How to read it

0-25 (CALM) — real rates near long-run lows, capital is being given away. 25-50 (WATCHFUL) — slightly stimulative. 50-75 (ELEVATED) — real rates above norm, capital is expensive. 75-100 (MANIA) — real rates near long-run highs, deep risk-on positioning is being punished by carry.

## Future enhancements

v1 uses a single component (real Fed funds). v2 will add 10-year TIPS yield, 30-year real mortgage rate, and real high-yield corporate yield to give a fuller term-structure view of real cost of capital across durations.

## Source

Computed daily by Palanor from 1 component signals in the lattice. Each component's weight, transform and current contribution is shown on the index's methodology page.