Has the Fed Already Lowered Interest Rates?
money.s...@gmail.com
We note straws in the wind which indicate that the Fed may already
have lowered interest rates. While there has been no official
announcement, we note with keen interest that yesterday afternoon Fed
funds traded at 4.62%, more than half a point BELOW the official funds
target rate of 5.25% In addition, the yield on the 30 day T-bill is
now trading more than 1 full point BELOW the official funds rate.
The Fed has complete control over the overnight rate. In fact, Fed
funds is the one rate it does absolutely control. Late last week, when
banks panicked and drove the funds rate up to 6%, the Fed intervened
IMMEDIATELY, driving it back down to the official 5.25% rate.
If the funds rate does not return to 5.25% today, we will infer that
the Fed HAS ACTUALLY CUT RATES, AND BY A SIGNIFICANT AMOUNT (quarter
point moves are typical; half point moves are somewhat unusual, except
in serious situations).
It is also extremely difficult for the Fed to hold the Funds rate a
full point above the 30-day rate. Nor is there any reason they should
wish to do so, since the signal the bond market is giving is now
UNMISTAKABLE to even the most wilfully OBTUSE AT THE FED. The bond
market is ordering the FED to cut, cut, cut.