In August 2026, the US Federal Funds Rate averaged 3.63%. This is the overnight rate the Federal Reserve targets. US consumer prices were 3.4% higher than a year earlier. So the Fed's rate was just 0.2 percentage points above inflation.
That gap is the real interest rate. It shows what a loan really costs and what savings really earn, once inflation is taken out. Here is how to work it out, how it has moved since 1970 and how the bond market quotes it every day.
What is a real interest rate? A real interest rate is an interest rate minus inflation. It measures what a loan really costs, or what savings really earn, in terms of what money can buy.
The Federal Reserve's key rate was 0.2 percentage points above inflation in August 2026. Since 1970, the gap has ranged from +9.5 points in June 1981 to −8.3 points in March 2022.
The Fed's rate has been below inflation in 38% of months since 1970. In the 2010s, it was below inflation in 84% of months.
Some US government bonds protect against inflation. Their yield is a real yield: the return above inflation. The 10-year real yield reached 2.93% on 30 September 2026. That was its highest since November 2008.
What is a real interest rate?
A bank might pay 5% a year on savings. That figure is the nominal interest rate. It says nothing about what the money will buy. The real interest rate takes inflation out:
Real interest rate = nominal interest rate − inflation.
Say you save $100 at 5% for a year, while prices rise 3%. You end the year with $105. But goods that cost $100 now cost $103. Your buying power has grown by 1.94%. The quick subtraction gives 2%. The two answers are close when rates and inflation are low.
A real rate can be negative. Then savings lose buying power even while they earn interest, as we show in How Much Does Inflation Erode Savings?
Nominal vs real interest rates: the Fisher equation
The three numbers fit in one line, named after the American economist Irving Fisher. The St. Louis Fed puts it this way: "the nominal interest rate is equal to the real interest rate plus the expected inflation rate".
The key word is expected. A lender agrees a rate today, but the inflation happens later. That gives two ways to measure a real rate:
Ex-post, or looking back. Take today's rate and subtract inflation over the past 12 months. It is easy to work out from published data.
Ex-ante, or looking ahead. Subtract the inflation expected over the life of the loan. This is the real rate a lender and a borrower agree to, but expectations cannot be seen directly.
The real Fed Funds Rate since 1970
The Federal Funds Rate is the rate banks charge each other for overnight loans. We explain it in What Is the Fed Funds Rate? Here, we subtract the 12-month change in the Consumer Price Index (CPI), the monthly measure of US consumer prices from the Bureau of Labor Statistics. This is the look-back method.
Source: FRED (FEDFUNDS, CPIAUCNS); YX Insights
The chart shows the gap each month. Above zero, the Fed's rate beat inflation. Below zero, inflation beat the rate.
February 1975: the real rate fell to −5.0 points.
June 1981: it peaked at +9.5 points. The Fed's rate averaged 19.1% that month.
March 2022: it hit −8.3 points. The Fed's rate was 0.20%, while inflation was 8.5%.
2026: it turned negative in April, for the first time since April 2023. Inflation reached 4.2% in May, pushing it to −0.6 points. By August, it was back at +0.2 points.
We show how the rate rises of 1980 and 2022 worked on inflation in Interest Rates and Inflation.
Real interest rates by decade
Decade | Median real Fed Funds Rate (points) | Months below zero |
|---|---|---|
1970s | +0.2 | 45% |
1980s | +4.6 | 6% |
1990s | +2.5 | 5% |
2000s | +0.3 | 41% |
2010s | −1.1 | 84% |
2020 to August 2026 | −0.2 | 53% |
Source: FRED (FEDFUNDS, CPIAUCNS); YX Insights
The table gives the median real Fed Funds Rate in each decade, plus the share of months below zero. The median is the middle value, so one extreme month cannot pull it far.
The 1980s and 1990s stand out, with medians of 4.6 and 2.5 points. In the 2010s, the median was −1.1 points, with 84% of months below zero. The longest stretch below zero ran 62 months, from November 2009 to December 2014. Since 1970, the real rate has been below zero in 38% of months. Its median was 0.6 points.
Real yields: the 10-year TIPS yield
Bond markets publish a real rate every trading day. It comes from Treasury Inflation-Protected Securities (TIPS), US government bonds that adjust for inflation. The Treasury raises their principal, the amount repaid at the end, in line with the Consumer Price Index. TIPS then pay a fixed rate of interest every six months on that adjusted amount.
So a TIPS yield is a real yield: the return above inflation locked in by holding the bond to maturity.
Source: FRED (DGS10, DFII10); YX Insights
On 2 October 2026, the ordinary 10-year Treasury yield was 5.28%. The 10-year TIPS yield was 2.92%. Two days earlier, it reached 2.93%, its highest since November 2008. Its low was −1.19%, on 3 August 2021.
The gap between the two lines is called the breakeven inflation rate. It was 2.36% on 2 October 2026. If inflation averages about 2.36% a year for ten years, both bonds pay about the same. It fits the Fisher equation: 2.92% real plus 2.36% breakeven gives the 5.28% yield.
Look-back vs look-ahead real yields: the 2022 gap
Source: FRED (DFII10, DGS10, CPIAUCNS); YX Insights
The chart puts the two measures side by side for ten-year bonds. The TIPS yield looks ahead. The 10-year Treasury yield minus past inflation looks back.
For long spells, the two lines sit close together. In March 2022, they split. Inflation over the past year was 8.5%, so the look-back measure fell to −6.4%. The TIPS yield averaged −0.7% that month. The ordinary 10-year Treasury yield minus the TIPS yield put expected inflation at about 2.8% a year for the next ten years. That is the breakeven inflation rate shown above. By June 2023, CPI inflation was down to 3.0%. The 8.5% inside the look-back measure did not last.
So when inflation moves fast, a look-back real rate can be badly out of date.
What real interest rates mean for savers, borrowers, the Fed and gold
Savers. With a negative real rate, cash in the bank loses buying power each year.
Borrowers. A negative real rate helps borrowers, because inflation shrinks the value of the debt. A positive real rate makes borrowing costly even after inflation.
The Fed. In September 2026, Fed officials put the long-run Fed Funds Rate at 3.2%. That is their median projection for the rate once inflation is back at the 2% goal. By our own sum, 3.2% minus 2% gives a long-run real rate of about 1.2%. In August 2026, the real rate was 0.2 points, below that level.
Gold. Gold pays no interest, so a higher real yield raises the cost of holding it. We show the link in What Drives the Gold Price?
How to read a real interest rate
Check the inflation measure. The Fed's 2% goal is set on the Personal Consumption Expenditures (PCE) Price Index. In August 2026, it rose 3.4% on a year earlier. That was about the same as CPI. In other months the two can differ, as What Is PCE Inflation? shows.
Check whether it looks back or ahead. A look-back rate uses past inflation. A TIPS yield looks ahead.
Match the time spans. Compare an overnight rate with inflation now. Compare a 10-year yield with inflation expected over ten years.
Know where to find it. FRED, the St. Louis Fed's data site, publishes the 10-year TIPS yield each day as DFII10.
A real interest rate is the interest rate minus inflation, so it shows what money really earns. In August 2026, the Fed's rate beat inflation by 0.2 points. On 2 October 2026, the 10-year TIPS yield offered 2.92% above inflation.
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