At what point does the Fed raise rates?

Discussion in 'Economics' started by the1, Oct 14, 2009.

  1. You are aware, I hope, that there's arnd 20bps of difference between front Eurodollar and front FedFunds?

    As to the original subject, I have two questions. Firstly, determination of asset bubbles is subjective, whereas unemployment numbers aren't. Secondly, what if low rates are not only the reason for record bank earnings (which they are), but also the one thing keeping unemployment at 10% rather than 15%? Would you argue for higher rates, still?
     
    #11     Oct 14, 2009
  2. I was worried about Fed may raise its rate in Dec after seeing eurodollar drop down in last week. you are right, the front end eurodollar and fed funds only 16-18bps apart. Well, eurodoolar rebounded and usd crashed further and breached 1.49 today.
     
    #12     Oct 14, 2009
  3. This is a commonly repeated fallacy, it is patently untrue even in the absence of QE.

    The Fed controls the value of money. Therefore it controls, to some extent, the price (in dollars) of all assets, including long bonds. A simple example would be if the Fed raised the price of money to 10%. Do you really think that the price of T bonds would not collapse to reflect the increase in the value of the money? In other words, who would lend for 30 years at 4% when they can get 10% on their cash? Long rates would rise, hence the fed has control of them.
     
    #13     Oct 15, 2009
  4. The Fed has a "bullish bias". Since government securities are their primary collateral, they have a (in)vested interest in maintaining their value. The next tightening cycle, if such a thing occurs in the future, may not go very far. :cool:
     
    #14     Oct 15, 2009
  5. Of course they won't raise rates to 10%. There is no one at the fed, or in government, with the brains or balls to do what is right.

    My point was that the fed does indeed control (to an extent) long rates, and when Bernanke/Greenspan say they had no influence on the housing bubble they are either dumb or lying. If cash was yielding 10% there would have been no mortgages at 5%, no teaser rates at 2%, much more savings and much less speculation.
     
    #15     Oct 15, 2009