Interest Rates
Sept. 23, 2006
The Federal Reserve kept the federal funds rate at 5.25% on September 20.
The press has completely misunderstood what this means.
As always, the press asked: "Does this mean that the Fed will stop raising rates?" The Fed is not only not going to raise rates, it is keeping the FedFunds rate so high that it has lost touch with reality -- the rate, I mean.
On September 20, the one-month T-bill rate was 4.72%. On September 1, it was 5.07%. That means the rate had fallen by .35% in less than three weeks. Yet the overnight bank-to-bank FedFunds rate was kept at 5.25%.
Rates are falling: short term and long rates. Yet the FED pretended that nothing has changed. A lot has changed.
The economy is clearly heading toward recession conditions, yet the FED keeps the rate up! What gives?
I explain this in detail here:
I'll say this much here: The FedFunds rate is now a PR device. The FED kept this rate high, despite the fact that fewer banks are borrowing at this high rate. It's not a real rate any more.
The yield curve has inverted again. The FED is sticking to its guns: Pop the real estate bubble.
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