How does the Fed move interest rates?

[SunTrader]

There is far too much misunderstanding about our Government's central bank's role in supplying an economy with the right amount of money our economy needs ....

If there is a take-away lesson here, {sorry there ain't} it's that we should do a better job of electing an intelligent, well-educated Congress.

Happy Fourth of July, SunTrader!

Happy belated 4th back at ya.

But Gubmint is no different than the rest of us. In my book they should only spend what they have, not create what they don't. No need to beat this once again. Have a good one.

 

[mervyn]

There is far too much misunderstanding about our Government's central bank's role in supplying an economy with the right amount of money our economy needs to carry on commerce while protecting the stability of our money.

Someone, or some thing, has to create the money we use, and i don't want you to be the one that does it, and I'm sure you don't want it to be me. Let's let the government do it! The part of our Government that does it is the Congress. The Constitution gave the Congress this specific role. Neither the Fed nor the Treasury decides how much, semi-permanent "outside money" is to be created. It is simply a myth that the Treasury or our Central Bank has anything to do with deciding how much "outside" money is created. The Congress, and only the Congress, decides this. It decides this when they instruct the Treasury to spend in deficit.

If there is too much, or too little "outside" money created it is Congress's fault. The Treasury and Fed, working together, do an amazing job of correcting for too much outside money created by Congress, but they are powerless to do much about too little being created. Congress can also destroy money by taxing. And In this regard they have failed us all in recent years and we are beginning to see the damage Congress is doing to our democracy by failing to tax adequately.

By the way the vast majority of money in the economy at any time is temporary money created out of the semi-permanent form of money Congress creates. This huge amount of temporary money is created through the "magic" of fractional reserve banking which is the engine that drives our amazing American economy. All of us together determine how much of this temporary money we want. The Fed only influences us and implores us to create more or less, but we are the ones that decide how much of this temporary money we want to create.

If there is a take-away lesson here, it's that we should do a better job of electing an intelligent, well-educated Congress.

Happy Fourth of July, SunTrader!

dude, the congress is clueless. they rely on their staffs to tell them the numbers. and congress earmark for their own constituent, hence money creation.

 

[leonel]

LOL "money-like instruments", "reserves", "expanding its balance sheet" and on and on.

Why is it so hard to say they create monnnnnnnnnnney? More importantly from nothing.

If a private citizen does it, it is called counterfeiting and criminal.

Lol, private mortgage lenders, banks, private equity, corporations, real estate investors etc etc all of them create money "out of nothing" all the time. See, Corporate Bonds are a form of money too, because they can be easily converted into something of higher moneyness (like deposits) Of course, they are not “money” in the same sense that bank deposits are because they aren’t a very useful medium of exchange for practical purposes.

And under the current monetary design, US government bonds resemble something like corporate bonds much more than they resemble something like bank deposits. Therefore, government bonds should best be thought of as financial instruments with a high level of moneyness

 

[SunTrader]

Lol, private mortgage lenders, banks, private equity, corporations, real estate investors etc etc all of them create money "out of nothing" all the time. See, Corporate Bonds are a form of money too, because they can be easily converted into something of higher moneyness (like deposits) Of course, they are not “money” in the same sense that bank deposits are because they aren’t a very useful medium of exchange for practical purposes.

And under the current monetary design, US government bonds resemble something like corporate bonds much more than they resemble something like bank deposits. Therefore, government bonds should best be thought of as financial instruments with a high level of moneyness

LOL They only are able to do that when interest rates, obviously controlled by The FED (LOL), are kept artificially low for long periods of time. LOL

One more for good measure LOL.

PS if only it was really a funny matter.

 

[SunTrader]

(Bloomberg)

Fed plans
Wall Street economists and strategists caution that the process of reducing the Fed’s balance sheet remains complex and hard to predict. Powell has assured lawmakers that the central bank is avoiding a repeat of 2019 — when the repo market, a key part of US financial plumbing, seized up. However, the full impact of the process — known as quantitative tightening — has yet to be felt in markets. “Things will start tightening on the liquidity side,” predicted Raghuram Rajan, the former International Monetary Fund chief economist and Indian central bank governor. “Then we will see the full consequences” of QT, he said last week on Bloomberg Television.

 

[leonel]

LOL They only are able to do that when interest rates, obviously controlled by The FED (LOL), are kept artificially low for long periods of time. LOL

One more for good measure LOL.

PS if only it was really a funny matter.

Actually, the FED do not control the rates, the markets do. The FED react to the curve. The bond markets are consistently accurate at pricing in what the Fed will do throughout the year. Central banks can influence interest rates, of course. But there’s a world of difference between influence and control. At best, when the Fed affects the federal funds rate, it helps markets transition to a new supply-and-demand equilibrium impelled by changes in economic fundamentals

 

[SunTrader]

Actually, the FED do not control the rates, the markets do. The FED react to the curve. The bond markets are consistently accurate at pricing in what the Fed will do throughout the year. Central banks can influence interest rates, of course. But there’s a world of difference between influence and control. At best, when the Fed affects the federal funds rate, it helps markets transition to a new supply-and-demand equilibrium impelled by changes in economic fundamentals

So then how do you account for market reactions when the market ... gets it wrong?