Economics Glossary

Plain-English definitions of the economic terms behind rates, inflation, currency, commodity, stock and crypto news, with how each one connects to markets.

Rates & Central Banks

Federal funds rate: The federal funds rate is the overnight rate at which US banks lend reserves to each other; the Fed sets a target range for it, making it the de facto US policy rate.
FOMC: The FOMC (Federal Open Market Committee) is the Federal Reserve body that sets the target range for the federal funds rate and US monetary policy, holding eight scheduled meetings a year.
Hawkish vs. dovish: Hawks favor higher rates and tighter policy to fight inflation, while doves favor lower rates and easier policy to support growth and jobs; the terms describe central bankers and their messages.
Policy rate: A policy rate is the interest rate a central bank sets to steer borrowing costs; it is the starting point for bank lending, deposit and short-term bond rates.
Quantitative easing (QE): Quantitative easing (QE) is when a central bank, with little room left to cut rates, buys large amounts of government bonds and other assets to pump money directly into the financial system.
Quantitative tightening (QT): Quantitative tightening (QT) is when a central bank shrinks the bonds and other assets it bought, draining money from the financial system; it is the reverse of quantitative easing (QE).
Treasury yield: A Treasury yield is the annual return an investor earns by buying a US government bond today and holding it to maturity; the 10-year yield serves as the world's benchmark long-term rate.
Yield curve: The yield curve compares long- and short-term government bond yields, usually the US 10-year minus the 2-year; when short rates rise above long rates, the curve is said to be inverted.

Growth & Inflation

Consumer Price Index (CPI): The Consumer Price Index (CPI) measures changes in the prices households pay for a basket of goods and services, and is usually quoted as the change from a year earlier.
Core inflation: Core inflation strips out volatile food and energy prices to show the underlying trend in inflation, filtering out temporary shocks.
Gross domestic product (GDP): Gross domestic product (GDP) is the total value of all goods and services newly produced within a country over a period, the main measure of an economy's size and growth.
Nonfarm payrolls: Nonfarm payrolls, the headline figure in the monthly US jobs report from the Bureau of Labor Statistics, show how many jobs were added or lost outside the farm sector in a month.
PCE price index: The PCE price index measures price changes across all spending by and on behalf of US households, and it is the measure the Fed uses for its 2% inflation target.
Purchasing Managers' Index (PMI): The Purchasing Managers' Index (PMI) surveys company purchasing managers on orders, output, hiring and more versus the previous month; readings above 50 signal expansion and below 50 contraction.
Recession: A recession is a broad decline in output, jobs, income and spending lasting several months; two straight quarters of falling real GDP is a common rule of thumb, but in the US the NBER makes the official call using wider data.
Stagflation: Stagflation is a mix of stagnant economic growth and persistently high inflation, a combination that is especially hard for central banks to handle.

Currencies & the Dollar

Dollar index: The dollar index (DXY) tracks the US dollar against six major currencies, including the euro, yen and pound, in a single number; a higher reading means a stronger dollar.
Won-dollar exchange rate: The won-dollar rate is how many South Korean won it takes to buy one US dollar; a higher number means a weaker won.
Yen carry trade: The yen carry trade means borrowing Japanese yen at low interest rates and investing in higher-yielding assets elsewhere to pocket the difference.

Commodities

OPEC+: OPEC+ is the alliance of the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, with other producers such as Russia; by adjusting output, it has a major influence on global oil prices.
Safe-haven assets: Safe-haven assets are where investors park money when markets turn fearful; gold, US Treasuries, the dollar, the yen and the Swiss franc are the classic examples.
WTI and Brent crude: WTI (West Texas Intermediate) and Brent (North Sea) are the two main global oil price benchmarks; much Middle Eastern crude sold to Asia is priced off Dubai crude.

Stock Markets

Earnings miss: An earnings miss is when a company reports results well below analysts' consensus forecasts, often triggering a sharp drop in its share price; the opposite is an earnings surprise or beat.
Guidance: Guidance is a company's own forecast of upcoming revenue, profit or other metrics, usually given with its earnings; it often moves the stock more than the results just reported.
Korea discount: The Korea discount describes the tendency of South Korean stocks to trade at lower valuations than companies with similar profits in other markets.
Price-to-earnings ratio (P/E): The price-to-earnings ratio (P/E) divides a share price by earnings per share (EPS), showing how many times its annual profit investors are paying for a company.
Share cancellation: Share cancellation means a company retires the shares it has bought back, reducing the total number of shares outstanding and raising the value of each remaining share; it is a common way to return capital to shareholders.
VIX (fear index): The VIX measures the stock market's expected volatility over the next 30 days, calculated from S&P 500 option prices; it rises when investors are anxious, hence the nickname "fear index."

Bitcoin & Crypto

Spot bitcoin ETF: A spot bitcoin ETF is an exchange-traded fund that holds actual bitcoin and tracks its price; the US Securities and Exchange Commission first approved such funds for listing in January 2024.

Trends & the Economy

Lipstick effect: The lipstick effect is the hypothesis that when times are hard, consumers cut big purchases but keep spending on small, affordable treats such as lipstick.