Picking up on the money market(s) discussion from this morning, bill rates once again were suggestively shallow. The 4-week T-bill was just 14 bps in “yield”, well below the Fed’s new “floor” of 25 bps; the 3-month bill was just 24 bps and behaving nothing like what would be expected. Federal funds remain well-behaved but that isn’t a major component [...]
When decrying the state of monetary policy that relies on essentially a “dead” money market, what does that actually mean? The FOMC, after all, is using the federal funds rate to “tighten”, ostensibly, even though there isn’t anybody there. They have developed other tools to go along with the federal funds rate, but all that does is highlight the central [...]
Immediately after the Fed hiked interest rates last Wednesday – after sitting at 0% for 7 years – markets acted pretty much as one might expect. The Fed tightens monetary policy when the economy is strong so rising stock prices, rising interest rates and a strong dollar are all things that make sense in that context. I am sure there [...]
I covered a good deal of the background here, so I should only reiterate that it is a profound difference in actual mechanics this time as opposed to last. At the end of June 2004, Alan Greenspan’s Fed commanded that money market rates follow a new federal funds target (from 1.00% to 1.25%) and money rates did so. Of course, [...]
The FOMC at least still knows how to throw a party. It may not be what it once was, but for one day there was the familiar euphoria predicated upon the wish that central bankers might know something about anything. All-too-quickly, however, it vanished as it becomes increasingly clear, despite all attempts to rewrite this history, that there are no [...]
For an economy that is supposed to be on the verge of overheating, or at least moving decisively in that direction, there are an inordinate number of indications of a cyclical stall and termination rather than some beginning (or ripening). I’m not referring exclusively to economic indications, either, such as the Federal Reserve’s own industrial production figure that just showed [...]
Now that the FOMC has announced its intentions, it has to sit back and wait to see if it can actually do anything. This is the direct consequence of using the federal funds rate as the primary target, as it is a dead market that nobody really uses anymore. The only reason the Fed is still leaning on federal funds [...]
Now that the FOMC has done it, we get to hear about how it was surely the “right” time for it. Unlike September, conditions are supposedly an order of magnitude more settled. That has given the policymaking economists the green light to make sure they start the normalization process before “overheating” becomes the central concern. With August a fading memory, [...]
It is perhaps the perfect situational irony of this economic age, with the FOMC set to end its “emergency” policies by raising rates for the first time in a decade the very same day that the very same outfit, the Federal Reserve’s staff, just declared that the past cycle may have long since peaked. The monetary policy “exit” is a [...]
As the monetary world prepares for the monetary equivalent of D-Day, it bears reminiscing about the true lack of confidence that permeates away from the direct public front of the central bank. Yellen has declared that monetary policy will be “data dependent” but that isn’t truly the case. Any such data will be filtered into the Fed’s models, which are [...]
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