The Fed Still Follows The Market on Rates

We need to put to bed once and for all the notion the Fed is ahead of things and set rates to lead the market. It simply follows the market’s lead…..

 

“Davidson” submits:

This history will serve as a good example of how the Fed operates vs. what the Fed says it does. The Fed lets all believe that it has a handle on economic activity, but history disagrees. The Fed’s predictions are so fuzzy because it cannot predict rates, economic activity or even when it expects to raise or lower Fed Funds rates. The market sets rates based on investor sense of pessimism/optimism. If investors turn more positive, rates rise as fixed income is sold to invest in equities. And vice versa.

 

T-Bills are the ‘canary in the coal mine’. When investors shift safe haven capital to equities, T-Bill rates rise and the Fed follows with a lag whenever T-Bill rates exceed the Effective FFunds rate. Same when rates are falling. It is when T-Bills rise to the point that the T-Bill/10yr Treasury rate spread falls to 0.20% or less that lending shuts down enough to throw the current economic momentum into a major correction.

 

Rising or falling rates do not indicate improving or worsening liquidity. It is T-Bill/10yr Treasury rate spread which determines liquidity not the level of rates.

 

T-Bills rise to 1.23% vs. Effective FFunds 1.16%-Fed likely to raise by 0.25% shortly.




To see more posts on any of the companies mentioned in this article, enter their stock ticker symbol in the search box.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

comments powered by Disqus
Value Plays Blog
  • Todd Sullivan

    Todd's investing strategy is essentially long with the rare short. He seeks to buy undervalued issues with an upcoming catalyst that will help them realized.... More »

  • StockTwits Follow Todd Sullivan on StockTwits Follow Todd Sullivan on Twitter Subscribe to ValuePlays RSS via Email Subscribe to ValuePlays RSS
  • Tags

  • Archives