Kansas City Fed Policy Rate Uncertainty
Please consider the Kansas City Fed Policy Rate Uncertainty measure.
The Kansas City Fed’s Measure of Policy Rate Uncertainty (KC PRU) is a daily measure of market-based uncertainty regarding where short-term U.S. interest rates will be one year in the future.
The KC PRU is constructed using the same methodology as the Chicago Board Options Exchange Volatility Index (CBOE VIX) on Chicago Mercantile Exchange’s (CME) options data. We use Eurodollar contracts prior to 2023 and contracts on the Secured Overnight Financing Rate (SOFR) from 2023 onward. The Economic Review article “Introducing the Kansas City Fed’s Measure of Policy Rate Uncertainty” provides further details on the index, including a technical appendix describing the measure’s construction. Data are updated on a daily basis.
The KC PRU is calculated through an automated procedure using publicly traded options contracts. The measure does not reflect the views of the Federal Reserve Bank of Kansas City, its staff, or the Federal Reserve System.
One percentage point roughly means the market expects the one-year-ahead rate to be within about ±1 percentage point with 68% confidence, similar to how VIX works for stocks.
Long-Term Measure of Policy Rate Uncertainty (KC PRU)
Key Takeaways (1989–2025)
Period | Peak / Behavior | What was happening |
|---|---|---|
1989–1990 | Very high (~1.88) | Early data; post-1987 crash + savings & loan crisis + rate volatility |
1990s–early 2000s | Frequent spikes (1.5–1.8) | Recessions (1990, 2001), Asian financial crisis, dot-com bubble |
2008–2009 | Sharp spike to 1.94 | Global Financial Crisis — massive uncertainty about Fed response |
2010–2019 | Generally lower, with dips to ~0.35 | A stable low-rate environment, clear Fed policy guidance |
2020 | Brief spike then drop | COVID shock — Fed cut rates to zero quickly, uncertainty resolved fast |
2022–early 2023 | Highest on record (~2.18) | Inflation surge → aggressive Fed hiking cycle + banking stresses (SVB) |
2023–2025 | Sharp decline to ~1.12 | Fed paused hikes, then started cutting in 2024; markets gained clarity |
Detail Interpretation
Policy rate uncertainty is mean-reverting but has clear regime shifts. It rises sharply during economic stress, major Fed pivots, or when inflation is unpredictable.
The 2022 peak stands out as the highest in 35+ years — reflecting the unusual combination of post-pandemic inflation shock + fastest hiking cycle in decades.
Practical Application
High uncertainty periods often coincide with volatile bond markets, wider credit spreads, and cautious investor behavior.
Traders and economists watch this as a complement to the VIX — it specifically captures monetary policy confusion.
Era of Forward Guidance Is ending
The era of ridiculous forward guidance repeated month-after-month (even during some of the recent spikes), is coming to an end.
Kevin Warsh cannot control interest rate policy by himself, but he is likely to stop month-to-month forward guidance.
Warsh in Hot Seat
Ending forward guidance, if it happens, will be a bit of self preservation.
Warsh wants lower rates to appease Trump, but the market now thinks the next move is a hike (my opinion for many months).
Bond yields are breaking out. Warsh will not only be fighting the rest of the FOMC committee. He will be fighting the bond market itself.
Good luck with that.
Bond Market on Verge of Crash, Long Bond Yield Near 19-Year High
Early this morning I noted Bond Market on Verge of Crash, Long Bond Yield Near 19-Year High
The bond market thinks as much of Trump’s China visit as I do.
As I type, the 30-year long bond yield is right at the 30-year high, up 11 basis points to 5.125 percent.
Bond Yield Direction
Yields are heading up, as they should, given Trump’s disastrous tariff policy and Mideast policy, both contributing to inflation.
Trump needs a recession to cool demand, as long as it’s not a staflationary recession that kills the jobs market as well.
Unfortunately, a stagflationary outcome looks increasingly likely.
Warsh will not deliver a rate cut in June. And Trump will immediately howl. That much is clear.
Warsh’s baptism of fire is coming right up. Expect Trumpian fireworks on June 17, the next FOMC meeting. The world will be tuned in.
In the Real World
May 12, 2026: CPI Hotter than Expected, Highest in Three Years, a Genuine Disaster
Inflation in April was another scorcher. Here are some month-over-month and year-over-year charts.
May 12, 2026: Real Hourly Earnings Decline Again, No Growth Since Trump Took Office
If it feels like you are not getting ahead, it’s because you aren’t. Six charts.
May 13, 2026: Two Reasons the CPI Report Will Give the Fed Severe Headaches
There are two very troubling aspects of the latest BLS CPI report. Did you spot them?
May 13, 2026: Two Reasons the PPI Report Will Give the Fed Severe Headaches
This morning, I listed two big headaches in the CPI report. Now, it’s the PPI’s turn.
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