Thursday, November 3, 2016

Federal Reserve Irrelevance

As expected, the Federal Reserve took no action yesterday at their Open Market Committee two-day meeting.  But, the Fed did signal a rate hike for December....whoop-tee-doo!

Rates have already climbed more than 50 basis points on longer dated treasuries.  It is becoming all too obvious that the Fed is irrelevant in the rate setting market.  They don't matter.  The infamous December 2015 "Liftoff," which "raised" rates did nothing of the kind.  Across the board, interest rates fell after the Fed "Liftoff."

Now rates have been moving steadily higher since July ...... without the Fed.  So, at the end of the day, what difference does the Fed make?  You would think that their actions have at least a 50/50 chance of moving rates in the direction they desire.  So far, they are batting zero.

It is 100 percent certain that the Fed will raise repo and funds rates in December, so that they can continue to pretend that the Fed matters.  The Fed only matters because of their absurd policy of buying several trillion dollars worth of debt securities that now hamper their ability to conduct monetary policy.  Otherwise, the Fed is irrelevant.

But, they still get a lot of press.

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