Could the money judgment interest rate tables offer clues on inflation?

By J.J. Conway
J.J. Conway Law

It was a little more than a year ago when the notices started arriving. Many of our vendors were announcing price increases because of rising inflation levels. It was around this same time that I first noticed something interesting in the Money Judgment Interest Rate Tables that appear regularly in legal publications across Michigan. The published MJIR table (which currently goes back to 1987) may hold the key to explaining when the country’s inflation rate may come down. See https://www.michigan.gov /taxes/interest-rates-for-money-judgments.

Resetting every six months, the MJIR offers a quick historical snapshot of the U.S. economy and may provide a few clues as to how, and when, there will be a meaningful decline in the inflation rate. The MJIR tables reveal an interesting pattern in U.S. economic history when viewed in a table format. Glancing at them, laid out year by year, big jumps in the published rates typically correspond to some big,
negative, precipitating event. That event is then followed by action by the Federal Reserve Board – either increasing or decreasing interest rates - to get us out of the problem.

The MJIR is the rate of interest in a civil action that applies to judgments. It is calculated twice annually. The interest rate on judgments is 1% added to the average auctioned interest rate of 5-year U.S. auction treasuries during the prior six month period from July 1st to January 1st. The MJIR compounds annually on all sums awarded in the judgment and is calculated from the date the complaint is filed.

What is interesting about looking at the MJIR table in its entirety is that one can quickly see the interest rate fluctuations that correspond to significant dates in U.S. history.

For example, during the period between January 1, 1989 and July 1, 1989, the MJIR jumped to 9.1%.  According to news accounts at the time, the Federal Reserve Bank was attempting to curb inflation by raising interest rates. A rapid rise in stock market prices caused inflationary pressures on the economy following the stock market crash that occurred on October 19, 1987, known as “Black Monday.”  On the rebound, the economy took off, and the Fed raised rates in response to rising in stock market prices. The rise in rates was followed by an economic recession, and the Fed started to lower rates again for nearly five years.

During the period of 1999 to 2000, the Fed raised interest rates again. This time the Fed raised them as much as 1.75% in response to the stock market speculating during the era of “Dot.com” stocks. Eventually rates came down, and the Fed’s rate decreases continued and accelerated rapidly following the September 11th attacks as reflected in the MJIR.

After several years of low rates, interest rates steadily rose before jumping again from 2004 to 2007. Then, following the Great Recession, the Fed rapidly reduced interest rates within a six-month period by nearly a full percentage point in 2008. The Fed continued to cut interest rates to below 1% in 2012 and 2013 with interest rates remaining historically low through 2018.

Rates increased slightly and then the world was hit by a global viral pandemic. The entire U.S. economy was shutdown briefly, and the country was plunged into an economic crisis almost overnight (recall oil was less than $0 per barrel one point in April 2020).

To dig the economy out, the Fed sharply lowered interest rates again from July 1, 2020 to July 1, 2021. The economy took off, unemployment plummeted, the government had provided nearly everyone tens of thousands of dollars to survive, and there was a shortage of needed goods.

With the country awash in saved stimulus payments, near full employment, and available products in short supply, inflation started creeping up, and then soared. In an attempt to bring it down, the Fed steadily raised interest rates, so much so that they nearly tripled over the period from July 1, 2021 through July 1, 2022 as reflected in the MJIR tables. They continued to rise until they hit 3.43% this past July, as reflected in the MJIR.

What does this all mean? A glance at the MJIR provides a quick historical reference point to modern U.S. economic history from 1987 to the present, and the tables provide some idea of how these cycles work and the timeframes for emerging from a challenging situation. There is a variation in the recovery periods for all of these events. Whether the period is the 1987 stock market crash, the September 11th attacks, the Great Recession, or COVID-19, they follow a similar pattern in the tables. A precipitating event, a Fed response, a recovery, another Fed response, and then periods of relative stability. If the tables are any guide, we are more than halfway through this inflationary period, and then perhaps a little stability is on the way. Thankfully.
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John Joseph (J.J.) Conway is an employee benefits and ERISA attorney and founder of J.J. Conway Law.